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The opposite of Increasing Returns to Scale would be, of course,
Decreasing Returns to Scale (DRS) or Diseconomies of Scale. Long
run cost curves for such an industry are shown to the right.
If the LRAC curve is rising, LRMC must be above it, as shown. In such an industry large firms would be at a cost disadvantage; therefore, we would expect the industry to be made up of relatively small firms.
It may be that these
types of costs explain why restaurants and bars are small relative
to the market, in large cities. However, of course, it may just be that
consumers don't want to dine in a restaurant that seats 10,000.
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