Economies of Scale vs Diseconomies of Scale
Economies of Scale and Diseconomies of Scale are two Production & Costs concepts in AP Economics that students often mix up. In short: economies of scale is economies of scale occur when long-run average total cost decreases as output increases. Meanwhile, diseconomies of scale is diseconomies of scale occur when long-run average total cost increases as output increases. Here is how they compare side by side.
Economies of scale occur when long-run average total cost decreases as output increases.
This happens due to factors like specialization, bulk purchasing, or more efficient technology as the firm expands. It leads to lower per-unit costs and gives larger firms a cost advantage in the market.
Diseconomies of scale occur when long-run average total cost increases as output increases.
This results from coordination problems, communication breakdowns, or bureaucracy as a firm becomes too large. It causes per-unit costs to rise, reducing efficiency and profitability at higher output levels.
Get AP Econ exam tips in your inbox
Occasional emails with study tips, new interactive graphs, and exam-season reminders. Free — no spam.
No spam. Unsubscribe anytime.