Question

Is there any diseconomies of scale of production? If so, discuss fully.

Answer 1

All of the losses that occur to businesses in the sector as a result of increasing their output to a certain point are referred to as “diseconomies.” These diseconomies result from the employment of unskilled laborers, antiquated production techniques, etc. Like economies, diseconomies are also of two types.

1. Internal diseconomies: Internal diseconomies refer to all of the elements that increase a company's production costs when its output beyond a certain threshold.
2. External diseconomies: Some of the external diseconomies are as under:

Some of the external diseconomies are as under:

1. Diseconomies of pollution: The environment is contaminated when an industry is located in a specific area. The workers' health is at risk due to the contaminated surroundings. As a result, the social cost of manufacturing emerges, leading to pollution diseconomies.
2. Diseconomies of strains on infrastructure: An industry's localization places undue strain on the area's transportation infrastructure. This causes a delay in the shipping of both raw materials and completed goods. Additionally, the region's communication system is overburdened. Both the financial and actual costs of production increase as a result of the demands on the infrastructure.
3. Diseconomies of high factor prices: Firms compete more fiercely for the elements of production when an industry is overly concentrated in a certain industrial location. The price of the factors of production rises as a result, leading to large factor price diseconomies.