Diseconomies of Scale

Increasing scale does not only bring greater efficiency, it also causes certain costs to increase disproportionatley. Diseconomies may outweigh scale economies when a firm reaches a certain size and hence the average cost will start to rise. The essential nature of most diseconomies are managerial. 

Loss of coordination can occure as the scale of operations increases. The close knit strucutre of a small firm is lost, and departments can take on an independent life disconnected from corporate objectives.

Bureaucracy means rules, procedures and paperwork in an exact and specialised pattern. This ensures that all parts…