Internal Diseconomies

Definition:   This situation happens when a firm average cost of production rises beyond a certain level of output expansion.

Types of Internal Diseconomies are discussed below

a) Price increase lag behind the cost increase 

Attractive price of final commodities will hence increase competition among producers to raise their output and thus increase demand for scarce resources. This will result in the higher factor prices or the cost of production of the goods.

b) Complexity of management

Problems of the co-ordination, supervision and other encumbrances of the bureaucracy become extra intense as a firm expands. This will decrease the work efficiency and thus increase cost to the firm.

c) Lack of motivation

An employee in the large firm lack personal commitment since his contribution to the firm is relatively quite small. Thus he is not motivated to give his best as his effort can be fruitless.

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