Diseconomies of scale

A business can become so large that its unit costs begin to rise. Expanding firms can experience diseconomies of scale. Causes include:

• Ineffective communication. Coordinating large numbers of staff becomes a challenge. Big businesses can develop many levels of hierarchy which slow down communication or even lead to miscommunication.
• Reduced motivation. Staff can feel remote and unappreciated in a large organisation. When staff productivity begins to fall, unit costs begin to rise.

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