Diseconomies of Scale

Diseconomies of Scale is when a company becomes so big it becomes inefficient, this can lead to higher average total costs (ATC). Diseconomies of Scale is shown by the upward slope on the curve because per unit of good that is produced, it costs more.
This is because it is hard to control a big firm and manage all parts of it.

Lots of times with big companies communication is difficult and decisions are made slowly. Employees are also less motivated to work efficiently. The government can also place restrictions on large companies to hinder their production or sometimes even having different parts of a company working on the same thing.

In this video you see an example of Diseconomies of Scale. It shows how Starbucks needs to close over 600 of its franchises because they can no longer efficiently manage that many stores and are experiencing diseconomies of scale.
diseconomies%20of%20scale.gif
This curve represents Diseconomies of Scale because onec you reach a certain point the cost to produce each good increases




Sample Problem
Is it possible for a company/firm to grow too large? Why?




Answer:
Yes, because of diseconomies of scale a company can grow too large that it can no longer function efficiently and sometimes duplicate efforts, lack communication, and have less work effort.


http://en.wikipedia.org/wiki/Diseconomies_of_scale
http://www.investopedia.com/terms/d/diseconomiesofscale.asp
http://tutor2u.net/economics/content/topics/buseconomics/diseconomies.htm