Diseconomies of Scale

Statement

Diseconomies of scale are the increases in cost of production experienced by firms due to an expansion in their own scale of production (internal) or growth in the industry (external).

• Internal diseconomies of scale — the rise in unit cost of production when a firm expands its own scale of production.
• External diseconomies of scale — the rise in unit cost of production when the industry a firm belongs to experiences growth.

Notes

Diseconomies of scale are the mirror image of economies of scale: beyond a certain size, further expansion raises rather than lowers unit cost, so the long-run average cost curve turns upward. Internal diseconomies stem from the firm’s own growth — chiefly communication difficulties and falling worker morale as the organisation grows — while external diseconomies stem from the industry’s growth, such as strained shared infrastructure and intensified competition for inputs. The sources are catalogued in sources of economies of scale.