Diseconomies of Scale

CORE DEFINITION

Diseconomies of scale refer to the phenomenon where, as a firm expands its production scale, marginal benefits gradually decline, even falling below zero and becoming negative. This may be caused by the increasing complexity of internal structures as scale expands, which consumes internal resources, offsetting the benefits that scale expansion should bring, thus leading to diseconomies of scale. In economics, there are total cost curves and average cost curves, both of which are concave upward. The intersection of these two curves signifies the existence of an optimal scale. Before reaching this optimal scale, the larger the scale, the better, which is called 'economies of scale'; after reaching the optimal scale, the larger the scale, the more uneconomical it becomes, which is 'diseconomies of scale'.