Ch. 7 - External Economies of Scale and the International Location of Production

Question 1

Why can economies of scale lead to monopoly or oligopoly?

Answer 1

Because one or few big firms will have the production advantage, and thus markets tend to be dominated by them.

Question 2

Define economies of scale

Answer 2

Economies of scale is when unit costs decrease with an increase in output.

In other words, if you double the inputs, output will more than double.

Question 3

When does external economies of scale occur?

Answer 3

When the cost per unit depends on the size of the industry, but not necessarily on the size of any one firm..

Question 4

When does internal economies of scale occur?

Answer 4

When the cost per unit depends on the size of an individual firm, but not necessarily on the size of the industry.

Question 5

What are the three main reasons that a cluster of firms may be more efficient than an individual firm in isolation?

Answer 5

1. Specialised suppliers
2. Labour market pooling
3. Knowledge spillover