7.13 : חסרונות לגודל

In the long run, a firm may experience diseconomies of scale. This happens if the output is doubled and the cost is more than doubled. This disproportionate increase in cost impacts the Average total cost.

The upward slope of the long run Average total cost curve represents this, where Average total cost rises with greater output.

For example, a car manufacturer significantly expands production, and it encounters several challenges leading to diseconomies of scale.

Firstly, the complexity of coordinating between various departments increases, and managing a larger workforce becomes more difficult. So more executives are hired, increasing costs.

Secondly, ensuring consistent quality for significantly higher output levels becomes increasingly complex, and can become much more costly to perform consistently.

Next, bureaucratic hurdles slow down decision-making processes. The additional layers of approval for decisions slow the response time and increase costs.

Further, the employees become more focused on adhering to protocols and spend less time on innovations and discovering more efficient ways of working. This also increases costs.

When the long-run average total cost remains constant at a higher level of output, the firm experiences constant economies of scale.