Example of Hierarchical Growth and Diseconomies of Scale
A hypothetical firm's hierarchy illustrates how growth leads to disproportionate cost increases. Imagine a structure where each supervisor manages 10 workers and each manager oversees 10 supervisors. At a small scale of 10 workers, the owner can handle supervision. However, upon growing to 100 workers, a new layer of 10 supervisors becomes necessary. Further expansion to 1,000 workers requires adding another layer of 10 managers. This shows that expanding the production workforce demands a more than proportional increase in management staff, which is a source of diseconomies of scale. The alternative of reducing supervision intensity to maintain input proportionality would negatively affect productivity.
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Example of Hierarchical Growth and Diseconomies of Scale
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Learn After
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