Diseconomies of scale start to occur when the LRAC curve starts to rise with increasing output.

Reasons for dis-economies of scale

Poor communication in a large firm. It can be hard to communicate ideas and new working practices.
Alienation: Working in a highly specialized assembly line can be very boring if workers become de-motivated. In a large firm, there is an increased gap between top and bottom e.g. call centers
Lack of control: when there is a large number of workers it is easier to escape with not working very hard because it is more difficult for managers to notice shirking.

Relationship with economies of scale

If a firm faces constant input costs, then decreasing returns to scale imply rising long run average costs and diseconomies of scale.

However, it is possible that if the firm gains purchasing economies then increasing the factor inputs by 50% may not actually increase costs by 50%. Therefore, it is possible to have decreasing returns to scale, but not necessarily diseconomies of scale. But, if we assume a constant input price, decreasing returns will cause diseconomies of scale.

	Created by Connor Williams almost 4 years ago

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