Diseconomies of Scale

Diseconomies of scale occur when a company's increased size leads to higher average costs per unit. As a business grows, it can become harder to manage efficiently—leading to issues like coordination problems, overburdened management, or resource constraints. These inefficiencies cause the company's per-unit expenses to rise beyond a certain point, making additional growth less cost-effective. Essentially, after reaching an optimal size, expanding further can reduce overall efficiency and increase costs, which is why diseconomies of scale happen.