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Explain Various diseconomies of scale

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1. Competitive diseconomies: A lack of a competitive market can create a diseconomy of scale, as companies have no incentive to address inefficiencies and improve processes. Ignoring process disorganization drives up the cost of production and results in a competitive diseconomy of scale.

2. Infrastructure diseconomies: Business growth can also place constraints on local infrastructure. The production process might develop problems if a company grows to a point where natural geography cannot support it. For example, companies constructing buildings in regions that cannot handle the manufacturing level might experience an operational efficiency that results in a net loss.

3. Organizational diseconomies: Both small and large firms experience organizational diseconomies of scale. When a business suddenly grows, the company needs to hire new employees and open additional departments to scale effectively. Training new employees drives up a company’s average costs. More departments also means more potential for communication mishaps and management inefficiencies, which can also create organizational diseconomies.

4. Purchasing diseconomies: Companies can also trigger poor spending habits as businesses make more money. When a company experiences growth and an increase in sales, owners are more willing to pay higher costs for the same resource inputs. Known as a purchasing diseconomy, this spending phenomenon results in an increase in total costs.

5. Technical diseconomies: This internal diseconomy occurs when companies grow at a rate that is not scalable. As businesses grow, existing systems often require updates to meet new demands; however, in the transitioning process, inefficiencies can create additional costs, resulting in technical diseconomies of scale.
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