Questions and Answers
What happens to the cost per unit as the level of output increases in a firm experiencing diseconomies of scale?
Which of the following is an example of internal diseconomy of scale?
What is a result of specialisation of labour in a firm experiencing internal diseconomies of scale?
Why does a firm experiencing internal diseconomies of scale need to hire more managers?
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What is a consequence of having a more expensive HR department in a firm experiencing internal diseconomies of scale?
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What is a consequence of inadequate infrastructure in an industry experiencing external diseconomies of scale?
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What happens to the cost of raw materials when demand increases in an industry experiencing external diseconomies of scale?
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Why might firms be forced to offer higher wages in an industry experiencing external diseconomies of scale?
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What is an example of a force that can lead to external diseconomies of scale?
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What is the main effect of external diseconomies of scale on an industry?
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Study Notes
Internal Diseconomies of Scale
- Definition: Internal diseconomies of scale refer to the forces within a firm that lead to higher costs per unit as the firm expands its output.
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Causes:
- Communication Difficulties: As the firm grows, it becomes increasingly difficult to communicate efficiently with a large number of employees.
- Unproductive and Unmotivated Staff: Specialization of labor can lead to boredom and demotivation among staff, resulting in decreased productivity.
- Management/Administration Costs: As the workforce grows, more managers and a larger HR department are needed, increasing costs.
External Diseconomies of Scale
- External diseconomies of scale result in higher costs per unit as an industry expands.
- Inadequate infrastructure leads to increased costs, causing delays and pressure on existing infrastructure.
- Raw material shortages occur due to increased demand, leading to higher prices, e.g. global cocoa shortages increase costs for chocolate producers.
- Recruitment difficulties arise as firms struggle to find staff, forcing them to offer higher wages to attract workers.
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Description
Learn about internal diseconomies of scale, which occur when a firm's expansion leads to higher costs per unit due to communication difficulties, unproductive staff, and increased management costs.
