Internal Diseconomies of Scale

Internal Diseconomies of Scale

These are disadvantages a firm has to contend with as it grows larger or increases its scale of operation. For instance, managerial ability not only leads to economies of scale, but also diseconomies of scale. If the firm’s size continues to increase, certain indivisible factors may be duplicated.

This increases the average cost of production as well as creates problems of managing and coordinating the functions of other productive factors. A typical example one can cite is the red tape bureaucratic practices characterizing most industrial activities, which delay decision making and implementation.

Also, there is the problem of alienating the workers from the product and management and its consequential low morale of workers. The end result of all these undesirable effects of large-scale operations is a rise in the Average Total Cost (ATC) of production.