Diseconomies Of Scale

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DEFINITION of 'Diseconomies Of Scale'

An economic concept referring to a situation in which economies of scale no longer function for a firm. Rather than experiencing continued decreasing costs per increase in output, firms see an increase in marginal cost when output is increased.

Diseconomies Of Scale

BREAKING DOWN 'Diseconomies Of Scale'

Diseconomies of scale can sometimes occur for the follow reasons:

1) A specific process within a plant cannot produce the same quantity of output as another related process. For example, if in a product required both gadget A and gadget B, diseconomies of scale might occur if gadget B is produced at a slower rate than gadget A.

2) As output increases, costs of transporting the good to distant markets can increase enough to offset any economies of scale. For example, when a firm has a large plant capable of producing a large output located in one location, the more the firm produces, the more it needs to ship to distant locations.

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