When simple semiconductors was operating at the minimum efficient scale of 10,000–12,000 units per month, the firm's cost per unit was $45. however, when the output level was increased beyond 12,000 units, the cost per unit increased to $47. this increase was attributed to the wear-and-tear of the machinery, and complexities of managing and coordinating. what is this phenomenon known as?
Diseconomies of scale.
In microeconomics, diseconomies of scale are the cost disadvantages that economic actors accrue due to an increase in organizational size or on output, resulting in production of goods and services at increased per-unit costs.
Capacity Limits (Fixed Overhead)
Cost are generally divided into Variable and Fixed Cost. Every operation, machine or factory are limited to a particular capacity. As is the case in question, the machine capacity of Simple Semiconductors 12,000 unit. Production above the capacity of the machine would result to a strain in the machine hence the increased cost as a result of regular maintenance.
The cost of materials and labor (variable cost) have not increased. To produce above 12,000 units, a new machine should be purchased. This would effectively increase the capacity while forcing down the unit cost of the product if they are producing at their optimum capacity.
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