Diseconomies take place when increases in production increase costs; this can result from lower efficiency in the company- called internal diseconomies of scale. Other factors outside the firm also increase costs- called external diseconomies ( see above).
1.MANAGEMENT DISECONOMIESLarge firms have to be divided up into many specialist departments, for example, the planning department, personnel, accounts, production, design, sales etc. Each department will have a manager responsible for running it. For the firm to run successfully, all the departments must work together, but with so many departmental managers, decisions will take a long time and there may be disagreement.
2.LABOUR DISECONOMIESLarge firms use very specialized mass-production techniques. Labour is divided up into many specialized tasks but workers may then become very bored with their repetitive and often monotonous jobs. The work-force may then become less co-operative or less attentive to their work, so that the quality of the products they produce suffers. Strikes and disruptions may also occur if the workers feel they are poorly treated.The Advantages of a Whole Industry Being Large When a whole industry expands, either because the number of firms within it is growing or the existing firms are getting bigger, the firms in the industry may find they can enjoy certain benefits. External economies of scale use those advantages in the form of lower average costs which a firm gains from the growth of the industry.
They are especially important when all the firms in an industry tend to locate together in one particular place. In this case external economies of scale are known as economies of concutation.SKILLED LABOUR: When firms involved in the same type of activities locate near each other they all employ certain local people in the work skills they need.
A large skilled labour force emerges which can benefit other firms who move into the area. ANCILLARY FIRMS: In areas where similar firms locate, other firms may join them to cater for some of their needs. CO-OPERATION: Where firms locate together to produce one particular good or service they tend to help each other though they are also competing with each other to sell their products.However there may be disadvantages if there are too many firms in an area. This can lead to traffic congestion, pollution etc. Why are there SMALL FIRMS? ( main reasons for the different sizes of firms) Large firms can enjoy special advantages like bulk buying, receiving loans at low interest rates and employing specialist staff. With lower average costs than smaller firms, large businesses can lower their prices to attract consumers.
With such fierce competition why is it that small firms can still survive and why does there appear to be a growth in their number?1. THE SIZE OF THE MARKET MAY BE SMALLSmall numbers of consumers are willing to buy a product. The size of the market will therefore decide the size of the firm. There may be reasons why the Markey for a particular good is small. 1. the market is LOCAL- where only one small firm is able to supply a good or service to the people of a particular area. We call it a local monopoly. 2.
A WIDE VARIETY of goods and services are wanted-consumers may want a wide variety of choice of products in different colours, styles and designs. Large firms that mass produce goods cannot afford to keep changing the colours and designs, while smaller firms can often cater for a variety of tastes.3. Luxury items are HIGHLY PRICED- the market may be limited by price. That is high prices mean that only a handful of rich people can afford to buy a very expensive product, that is produced by small firms for a small number of people. 4. People like PERSONAL SERVICE- industries which provide services rather than goods usually consist of a large number of small firms e.g.
lawyers. 5. A large firm requires COMPONENT PARTS- many small firms can survive by producing parts of large manufacturers. They are protected by a PATENT, which disallows by law any other firm from copying their idea. 2.SMALL FIRMS CAN CO-OPERATE Co-operation between small firms can lead them to set up jointly-owned enterprises which allow them to enjoy many of the economies of scale that large firms have.