Economies of scale
Internal and external economies and diseconomies of scale
External economies and diseconomies of scale are the benefits and costs associated with the expansion of awhole industry and result from external factors over which a single firm has little or no control.
External economies of scale include the benefits of positive externalities enjoyed by firms as a result of the development of an industry or the whole economy. For example, as an industry developes in a particular region an infrastructure of transport of communications will develop, which all industry members can benefit from. Specialist suppliers may also enter the industry and existing firms may benefit from their proximity.
External diseconomies are costs which are outside the control of a single firm and result of the growth of a specific industry. For example, negative externalities, such as road congestion, can result from the growth of an industry in a specific region. Resoures may become exhausted and the price of resources may rise as demand outstrips supply.
Internal economies and diseconomies
internal economy of
- Technical economies are the cost savings a firm makes as itcan benefit from technical economies because it can employ mass production techniques and benefit from specialisation and a division of labour.