Diseconomies of scale

Definition:

Diseconomy happens when the entity wants to decrease production costs or direct costs through increasing labor force and machinery but the result is not as what they want.

The productions costs per unit increase while entity deploy more labor force and machineries. The main reason is the marginal cost increase while the production increase.

How diseconomy is affect to the costs of products?

There are many reason why marginal cost increase while the productions increase. For example, increase workforce lead to insufficient supervision and lead to low productivities and well as quality.

Increase labor force may also need to increase the supervisory level and this lead to increase the more labor cost.

Small number of machine might produce the same productivities, yet increasing more machines might be different.

Machine will not produce the same units of products as what the entity want and this lead to poor control on large number of machines. Cost will also increases base on this inefficiency of machine management.

When there are large number of people, the communication will automatically become less effective. Some people, group of people in units, department, and division will feel isolate.

Others costs that are not related to productions costs are increasing while the productions are increasing. For example, transportation costs for delivering goods from factories to the store locations.

When diseconomy is happened?

Fast growing:

Some business growth very fast and entity face such situation normally deploys more people or and machines. They expected the cost of products or services will decrease due to increasing the production line and people.

However, managing large workforce and machine is not the same like managing the small group of people and small number of machine. They normally face the problem like we stated above. Therefore, di economic of scale happen.

High Price Competition Industry:

There are a lot of competitors in the market, some entity look into the production costs to let them stay at the competitive price.

Increasing the production believe to be one of the options that help entity  decrease marginal costs therefore, entity decided to deployed more people or machines. As the result, diseconomy of scale happen.