Diseconomies of Scale

Posted in Operations and Supply Chain Terms, Total Reads: 1226

Definition: Diseconomies of Scale

Diseconomies of Scale refers to the phenomenon where the marginal cost increases with increase in output, i.e., the cost to produce one more unit of output increases per unit with increase in production level. It is opposite to ‘economies of scale’ concept where the marginal cost decreases with the increase in output.

Generally, with increase in production level, the cost to produce per unit decreases for an additional unit. But after a certain point this reverses and the phenomenon is then called diseconomies of scale.

This may happen if

a)  the process is incapable of producing the same quantity of output as other related process

b)  the transportation cost increases the total cost,

c)  excessive wastage,

d) overcrowding,

e) mismatch between optimum output of different operations or

f) Due to mismanagement.


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