Such diseconomies may be associated with the difficulties of managing
and controlling an enterprise as its size increases. At first, there may be
scale economies as the firm grows and benefits from greater
specialization. But sooner or later, planning and coordination problems
may multiply more than in proportion to the growth in size. If so, costs
per unit of output will rise.
Other diseconomies are the possible alienation of the labour force as size
increases; it becomes more difficult to provide appropriate supervision as
more layers of supervisors and middle managers come between the
person at the top and the workers on the shop floor. Control of middle-
range managers may also become more difficult. As the firm becomes
larger, managers may begin to pursue their own goals rather than devote
all of their efforts to making profits for the firm.
In the early 1900s, Henry Ford pioneered the use of assembly lines in his
automobile production facilities and was successful at significantly
reducing per unit production costs. In an attempt to reduce costs further,
Ford built the massive River Rouge plant in Dearborn, Michigan, which
began production in 1928 as the largest integrated facility in the world.
But organizational complexities and alienation of the labour force
plagued the plant, and costs were actually higher there than at other,
smaller Ford facilities. Over time, the Ford Motor Company reduced the
size of the River Rouge plant and focused on building smaller factories
across the country and around the world.
Note that long-run decreasing returns differ from short-run diminishing