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Questions and Answers
What happens to the cost per unit as the level of output increases in a firm experiencing diseconomies of scale?
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?
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?
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?
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?
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?
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?
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?
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?
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?
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.
