Understanding Diseconomies of Scale in Market Structures

The video tutorial explains diseconomies of scale, where average costs increase as a firm grows. It uses examples of factory expansion to illustrate how increased size can lead to inefficiencies. Graphical representations show how average cost curves behave under these conditions. Managerial diseconomies, such as poor communication and low motivation, are discussed as contributing factors. The tutorial concludes by examining how diseconomies of scale affect market structure, often leading to markets with many small firms due to the higher costs faced by larger firms.

What are economies of scale and how do they affect production costs?

Explain the concept of diseconomies of scale.

Describe a scenario where increasing the size of a factory leads to diseconomies of scale.

What is the relationship between average costs and the size of a firm?

What are the managerial diseconomies that can occur in larger firms?

How do diseconomies of scale influence market structure?

Discuss how smaller firms can compete with larger firms in a market affected by diseconomies of scale.