What are the types of Internal Diseconomies of Scale?

Internal Diseconomies are those disadvantages which are internal to the firm and accure to the firm when it over expands its scale of production. The main internal diseconomies of scale are as follows:

1. Management Diseconomies and Diseconomies Related to Division of Labour

These diseconomies occur primarily because of increasing managerial difficulties with too large a scale of operations. It becomes difficult for the top management to exercise control and to bring about proper coordination.

2. Technical Diseconomies

If a firm frequently changes in it technologies and uses new technologies and new machines, it may increase its costs. After a certain limit, the large size or volume of the plant and machinery may also prove disadvantageous.

3. Risk-taking Diseconomies

The business cannot be expanded indefinitely because of the “principle of increasing risk”. The risk of the firm increases because of reduction in demand, change in fashion and introduction of new substitutes in the market.

4. Marketing Diseconomies

A large firm is forced to spend more on bringing and storing of raw materials and selling of finished goods in the distant markets.

5. Financial Diseconomies

A large firm has to borrow a large amount of money even at higher rate of interest. It imposes a burden on the financial position of the firm.

Leave a Comment

Your email address will not be published.