What is referred to when average costs worsen due to an increase in company size with inefficiencies?

The term that describes the situation where average costs increase as a company grows larger due to inefficiencies is known as diseconomies of scale. This phenomenon occurs when an organization expands beyond an optimal size, leading to challenges such as communication issues, management inefficiencies, and coordination problems. As a result, the costs associated with production per unit begin to rise.

In contrast, economies of scale refer to the cost advantages that a company can achieve as it increases its output. Technical economies specifically relate to the efficiencies gained through advanced production techniques or larger-scale production methods that reduce costs. Diminishing returns to scale, on the other hand, refers to a point where adding more input results in a proportionately smaller increase in output, which can occur before reaching diseconomies of scale but does not necessarily imply that costs will rise.

Therefore, diseconomies of scale accurately captures the essence of increasing average costs linked to company size and inefficiencies that arise as an organization grows.