Diseconomies Of Scale

AAA

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

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Economies Of Scale

    The cost advantage that arises with increased output of a product. ...
  2. Economic Value Added - EVA

    A measure of a company's financial performance based on the residual ...
  3. Ramp Up

    A significant increase in the level of output of a company's ...
  4. Dismal Science

    A term coined by Scottish writer, essayist and historian Thomas ...
  5. External Diseconomies Of Scale

    External factors beyond the control of a company increases its ...
  6. Scalability

    A characteristic of a system, model or function that describes ...
Related Articles
  1. Economics Basics
    Economics

    Economics Basics

  2. What Are Economies Of Scale?
    Economics

    What Are Economies Of Scale?

  3. Where is cost of living lowest in the ...
    Economics

    Where is cost of living lowest in the ...

  4. Opportunity Cost
    Investing

    Opportunity Cost

comments powered by Disqus
Hot Definitions
  1. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
  2. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  3. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  4. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  5. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  6. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
Trading Center