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Diseconomies of Scale The services world is one built upon economies of scale. For example, networking costs for small and medium sized services can run nearly an order of magnitude more than large bandwidth consumers such as Google, Amazon, Microsoft and Yahoo pay. These economies of scale make it possible for services such as Amazon S3 to pass on some of the economies of scale they get on networking, for example, to those writing against their service platform while at the same profiting (S3 is currently pricing storage under their cost but that's a business decision rather than a business model problem). These economies of scale enjoyed by large service providers extend beyond networking to server purchases, power costs, networking equipment, etc. * http://perspectives.mvdirona.com/2008/04/06/DiseconomiesOfScale.aspx

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What does the writer mean by diseconomies of sale?

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Difference between economics of scale and diseconomics of scale?

I assume you mean economies of scale and diseconomies of scale. Economies of scale are the benefits of lower average costs gained by a firm because it is large. Economies of scale can include things like the bulk buying of raw materials etc. Diseconomies of scale happen when a firm becomes too large for its own good and becomes inefficient, therefore resulting in higher average costs.


How does a company recognize that they've achieved economies of scale or diseconomies of scale?

They can recognise this by seeing that, when quantity is changed, the unit cost of production is falling or increasing at a changing rate. When there is an economy of scale, the unit cost of production is decreasing with units produced; with diseconomies, it is increasing. This can also be represented mathematically by finding the derivatives of cost functions.


What are diseconomies of scale?

When the business becomes too big that there wouldn't be enough managers to manage it efficiently => the marginal cost increases, pushing the average costs up.


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What does the term economies of scale refer to?

It refers to the reduction of cost per increased unit of production in order to raise efficiency. The inverse of this is also called diseconomies of scale.


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