Dis-Economies of Scale

-Internal and External

-

-kaliraj
Index
Meaning
Graph Explanation
Reasons and Causes
Conclusions
Meaning
Diseconomies of scale happen when a
company or business grows so large that the
costs per unit increase. It takes place
when economies of scale no longer
function for a firm. With this principle,
rather than experiencing continued
decreasing costs and increasing output, a
firm sees an increase in costs when output is
increased.
 At point Q*, this firm is

Graph producing at the point of

lowest average unit cost.
If the firm produces more
or less output, then the
average cost per unit will
be higher. To the left of
Q*, the firm can reap the
benefit of economies of
scale to decrease average
costs by producing more.
To the right of Q*, the
firm experiences
diseconomies of scale
and an increasing average
unit cost.
External economies and dis-economies of scale affect the
position of LAC curve.
With reduction in factor prices , the per unit cost falls and
LAC curve falls downwards as shown from the graph by
shifting from LAC to LAC1
On the contrary,with increase in factors of prices of
production like labor,capital and raw materials,the firm is
unable to meet this expenses,hence the per unit cost
increases.The LAC curve shifts upwards
From LAC to LAC2
 causes
Employee Costs
Communication Failure
Administration Costs
Compliance Costs
Conclusion
-Diseconomies of scale occur when the expansion of
output comes with increasing average unit costs.
-Diseconomies of scale can involve factors internal to
an operation or external conditions beyond a firm's
control.
-Diseconomies of scale may result from technical
issues in a production process, organizational
management issues, or resource constraints on
productive inputs.