A firm will experience diseconomies of scale when?

A. there are difficulties in coordinating production
B. there is shortage in labour supply
C. the size of market is small
D. there is an increase in the price of raw materials

Correct Answer:

Option A – there are difficulties in coordinating production

Explanation

Diseconomies of scale happen when a company or business grows so large that the costs per unit increase. One of the reasons for the Diseconomies of scale Loss of direction and coordination of production activities.

It is harder to ensure that all workers are working for the same overall goal as the business grows. It is more difficult for managers to supervise their subordinates and check that everyone is working together effectively, as the spans of control have widened. A manager may be forced to delegate more tasks, which while often motivating for his subordinates, leaves the manager less in control.