Negative economies of scale are rarely if ever discussed, but they are an important problem for the economy. Positive economies of scale are frequently discussed. When sales of goods and/or services rise, the fixed costs of a business are spread over more units of goods and/or services, so the cost of producing the goods and services goes down. We can expect the opposite when sales of goods and/or services goes down. The fixed costs are then spread over fewer units, so the cost of producing each unit increases. With even a moderately small decrease in sales, profits are decreased to zero, and with a greater decrease, the business begins to lose money. This is a problem in recessions. As a recession reduces sales of goods and services, negative economies of scale cause loss in profits and or going into the red, for businesses. The negative economies of scale therefore cause the downturn to become worse than it would have been without reduced sales of goods and services, which then decreases sales more. Negative economies of scale therefore, in a vicious cycle, cause recessions to become worse. I don't know whether or not this is a problem that can be solved. There might be some possible solutions, but we won't find them unless we actually ask ourselves if anything could be done to solve the negative economies of scale problem. I don't know if the following would help, but it is at least some idea, and it might trigger a better idea in the minds of others. All loans to businesses might be required to be set up so that the repayment would always be a certain percentage if a business's gross receipts. In that way, if sales declined, then gross receipts would decline, so loan repayments would decline, which would reduce the negative economies of scale. I would be happy to see discussion on this very tentative idea, bur would be even happier to see some people come up with additional ideas for solving the negative economies of scall problem.
They are related, but they are two different complex variables. A downturn in the economy causes negative economies of scale in businesses which have lower sales as a result. The negative economies of scale contribute to a further decline in the general economy. Therefore, if a way could be found to reduce negative economies of scale, then that would slow down the downturn in the general economy. You might try to think up outside the box new ways to reduce negative economies of scale. Usually people don't think of new ideas because they don't try to think up new ideas. What one doesn't try tends not to happen. I think the main reason people don't try to think up new ideas is that they say to themselves that they can't. There is sort of a general idea in our culture that only geniuses can think up new ideas, and therefore, people who aren't geniuses don't try. However, there is old research which indicates that it isn't true that only geniuses can think up new ideas. In World War 2, most good students were snapped up by the military, so companies who wanted to hire engineers had to hire second level C students. Some years later, it was discovered that the second level C students had just as many patents as engineers with higher grade averages. It has also been found that scores on creativity tests have almost no correlation with IQ. It would be helpful if the public were told that people with less intelligence can come up with good creative new ideas too. Then, more people would try to thihk up new ideas. But sadly, the public has never been told that. One thing to remember is that finding a new idea which is of good quality takes longer than solving a simple problem. It might take days, months, or years to come up with a good new idea. It also doesn't help to work on the same thing all the time. So if people do want to come up with a new idea, they should work at it frequently, but only from time to time, and they should only expect the idea to emerge when it emerges, which can't be predicted. One just keeps working on it until it happens.
I think a good point to bring up is the fact that diseconomies of scale aren't just affecting one business... If you have business A, B, and C, where the size of the business is modeled by: A > B > C, we expect C to lose profits first, which puts it at a greater disadvantage than both A and B. If C, goes under first, as expected, then sales are shifted to both A and B, which can make up for some of the temporary loss of profit
"This is a problem in recessions. As a recession reduces sales of goods and services, negative economies of scale cause loss in profits and or going into the red, for businesses. The negative economies of scale therefore cause the downturn to become worse than it would have been without reduced sales of goods and services, which then decreases sales more. Negative economies of scale therefore, in a vicious cycle, cause recessions to become worse." That quote is from the OP. That does not describe diseconomies of scales. It describes a trough in the Business Cycle. Diseconomies of scale apply factors of production and costs, etc. not sales drying up.
It's not necessarily a matter of the size of the business. It is more a matter of the fixed costs of a business. For example, if A has a large debt with high interest payments and is renting its buildings, while C has a low debt and owns its buildings, A will be affected by negative economies of scale more than C. Positive and negative economies of scale involve what the fixed costs of a business are.
We had no such problems during the days of FDR reform when the general welfare was our chief concern. Instead, nowadays these problems exist because society has succumbed to the stupidity of Reaganomics and its welfare for the rich. Put an end to that nonsense and society will be fully back on its feet economically.
You are obviously defining diseconomies of scale as different from negative economies of scale. Economies of scale involve only increases and decreases in sales. Then, there is a further discussion of why economies of scale, positive or negative, occur. Positive economies of scale happen because sales increase while fixed costs remain the same. Since fixed costs remain the same, they are spread over more units produced, so the cost of producing each unit decreases. In contrast, when sales increase, the amount of raw materials the business must purchase increases, labor costs increase, and so forth. In negative economies of scale, the opposite happens.
Most of the media is owned by the large corporations, and the corporations are trying to keep the public from paying attention to the increases in profits of the corporations at the expense of the earnings of the employees. The media tries to divert the attention of the public from what is happening in many ways. For example, they make a big deal out of sexual scandals, which keeps the public's attention on that rather than what the corporations are doing to them.
Economies of scale refer to cost advantages going down from the size of the operation. It really has nothing to do with sales. I have no clue where you learned that but it is completely wrong. http://en.wikipedia.org/wiki/Economies_of_scale http://www.investopedia.com/terms/e/economiesofscale.asp
