Diseconomies of scale occur when a company grows so large that its average costs begin to increase rather than decrease. This happens when a business operates beyond its optimal level, making it difficult to manage efficiently.

Types of diseconomies:

• Internal diseconomies: Problems within the firm, such as poor communication due to too many management layers, coordination difficulties, low worker motivation, wasted resources (X-inefficiency), and a loss of focus.
• External diseconomies: Problems outside the firm, such as rising costs for labor or rent, transportation congestion, and limited natural resources.

Key features:

• Beyond a certain size, producing more units becomes more expensive.
• In the long run, the average cost curve starts to slope upward.
• The long-run average cost (LRAC) curve is typically U-shaped, rising after reaching its lowest point.