.EXTERNAL economies/diseconomies and INTERNAL economies/diseconomies of scale a)
ID: 1125292 • Letter: #
Question
.EXTERNAL economies/diseconomies and INTERNAL economies/diseconomies of scale a) What is INTERNAL economics of scale? Any real world examples for INTERNAL economics of scale? What is INTERNAL diseconomics of scale? Any real world examples for INTERNAL diseconomics of scale? b) c) What is EXTERNAL economics? Any real world examples for EXTERNAL economics? d) What is EXTERNAL diseconomics? Any real world examples for EXTERNAL diseconomics? e) What are the differences between EXTERNAL economies/diseconomies and INTERNAL economies/diseconomies of scale?Explanation / Answer
Answer 5 -
a) Internal economies of scale refers to the benefits that arise to a firm only because of it huge size. It reduces the marginal cost of the firm, and thus cost of production decreases and thus firm becomes more competitive.
For eg. large firms can buy thier inputs in bulk, they are poewrful buyers and thus get better quality and better priced products.
b) Internal diseconomies of scale refers to the losses that arise to a firm only because of it huge size. It increases the marginal cost of the firm, and thus cost of production increases and thus firm becomes less competitive. For eg. large firms have high fixed cost in terms of infrastructure, building, more employees etc. This increases thier costs and makes them less competitive.
c) External economies of scale is the benefit to the firm due to reasons outside the firm but withing the industry of the firm. With the increase in size if costs decreases, this leads to better opprtunities for the firm and icreases its efficiency.
For ex if for a partcular industry the transportation system is very good, then all firm of that industry will be benefitted from that.
d) External diseconomies of scale is drawback to the firm due to reasons outside the firm but withing the industry of the firm. With the increase in size if costs increase, this leads to less opprtunities for the firm and decreases its efficiency.
For example if due to the increases size of the business, the demand for raw mterial has increased. It will increase the demand and excess cost will be incurred.
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