Distinguish between internal diseconomies of scale and external diseconomies of scale

Internal diseconomies imply to all factors which raise the cost of production from within a particular firm as a result of expansion of its scale of production. These can be technical issues of production or organizational issues within the structure of a firm or industry.

External diseconomies of scale refers to external forces imposed by the environment within which a firm or industry operates leading to increase in average costs of production. Causes external diseconomies of scale may includes

• Intense competition among the firms raises the cost of raw material.
• The scarcity of electricity, water, finance, and other factors of production raises the price.
• Local roads become congested and so the transportation cost begins to rise.
• Local labour becomes scarce and firms have to offer higher wages to attract new workers.
• Land and factories become scarce and rent begin to rise.
• The localization of an industry in a specific region leads to pollution. This adversely affects their health. The social cost of production rises.