ECON2410 Lecture Notes - Lecture 2: Learning Curve, Binary Logarithm
3 Aug 2018
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Lecture 2: the horizontal boundaries of the firm (part b) Sources of diseconomies of scale: firm size and increasing labour costs. Many talented individuals believe that having achieved success in one place, they can duplicate it everywhere. But they fail because they simply spread themselves too thin (unable to give full attention to all of their activities): conflict of interest. When a conflict prevents a company from obtaining business, such as a firm loosing additional work to a new client because they already do work for that client"s competitor. If one company is in the same area as you, you are not going to give an advice to them because you are competitors: incentive and coordination effects. When a firm grow it is: difficult to monitor and communicate with workers, difficult to evaluate and reward individual performance. This places a limit on the ability of firms to expand its horizontal boundaries.
