Question

Distinguish between internal and external diseconomies of scale.

Answer 1

Sr. No.	Aspect	Internal Diseconomies of Scale	External Diseconomies of Scale
1.	Definition	Cost disadvantages arise within a firm when it expands beyond optimal size.	Cost disadvantages affecting all firms in an industry due to external factors.
2.	Scope	Specific to an individual firm.	Affects all firms in a particular industry or region.
3.	Source	Internal operations and management inefficiencies.	External environments such as industry growth, infrastructure, or policy.
4.	Control	Can be mitigated by improving internal management practices and technology.	Difficult for a firm to control; needs industry or government intervention.
5.	Impact on Costs	Increases the firm’s average cost of production due to inefficiencies.	Raises costs for all firms, regardless of individual efficiency.
6.	Policy Response	Internal restructuring; better HR and IT systems.	Infrastructure development, training programs, and regional planning by the government.