Business – 9.1 Location and scale – Scale of operations | e-Consult
9.1 Location and scale – Scale of operations (1 questions)
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Model Answer:
- Internal Diseconomies of Scale: Occur when a firm’s own expansion leads to inefficiencies.
- Example – Management Over‑Complexity: As the firm grows, layers of hierarchy increase, slowing decision‑making and raising administrative costs per unit.
- External Diseconomies of Scale: Arise from industry‑wide factors that raise costs for all firms.
- Example – Local Resource Scarcity: Rapid industry growth depletes local infrastructure (e.g., road congestion), increasing transportation costs for every firm in the area.