Why might a larger business face diseconomies of scale?

A larger business might face diseconomies of scale primarily due to inefficient management. As businesses grow, they often become more complex. This complexity can lead to communication breakdowns, slower decision-making processes, and a lack of personal oversight. In larger organizations, it may be challenging to maintain effective management structures, which can result in various inefficiencies. For example, when a company has many levels of hierarchy, important information may not flow smoothly from the top to the bottom, leading to delays and miscommunication. Additionally, larger firms might struggle with motivating employees, aligning goals across different departments, and maintaining a cohesive company culture.

The other options do not accurately explain the potential for diseconomies of scale. Increased market demand typically leads to economies of scale as businesses can produce goods more efficiently to meet demand. Improved production techniques and better supply chain integration also generally contribute to cost savings, enhancing efficiencies rather than creating diseconomies.