Learning objective
Explain how growth can create diseconomies of scale through communication problems, coordination issues and reduced staff motivation.
Read the explanation, check the common trap, then practise with flashcards and questions.
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Topic
Expanding a business
Subtopic
Economies and diseconomies of scale
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Quick explanation
Explain how growth can create diseconomies of scale through communication problems, coordination issues and reduced staff motivation
- This point belongs to Expanding a business, especially Economies and diseconomies of scale.
- You need to be able to explain how growth can create diseconomies of scale through communication problems, coordination issues and reduced staff motivation.
- The key ideas to know are economies of scale and diseconomies of scale.
- Use the linked flashcards and practice questions to check recall, then practise applying the idea in an exam-style answer.
Key concepts
Why it matters
This objective helps connect Economies and diseconomies of scale to exam-style questions, flashcards, and revision notes for Expanding a business.
Quick student answer
Explain how communication problems can create diseconomies of scale for a small manufacturing business.
Direct answer
Communication problems arise when information must travel through more people or departments as a business grows. In a small manufacturer, this can mean that orders, quality specifications or production schedules are delayed or misinterpreted, leading to re‑work, stock shortages or over‑production. These inefficiencies increase variable costs, reduce output quality and raise the cost per unit, thereby creating diseconomies of scale.
How it works
The answer links the growth‑induced communication complexity to specific cost‑increasing outcomes, showing a clear cause‑effect chain.
Key terms
- Diseconomies of scale: A situation where a company’s average cost per unit rises as it grows, due to factors such as communication breakdowns, coordination difficulties, and declining employee motivation.
Common trap
Assuming all growth leads to lower costs: Growth can also increase complexity and costs; it is essential to analyse whether economies or diseconomies of scale are occurring.
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Revision notestopic notes
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