Following government investment in a centralized industrial park with a dedicated power substation and effluent treatment facility in Kaduna, dozens of independent textile weaving enterprises voluntarily set up factories within the precinct. Within three years, specialized yarn merchants, machinery repair workshops, and textile dye importers also established operations adjacent to the park. Which of the following best analyzes the primary economic advantage gained by an individual weaving enterprise operating in this zone, distinguishing industrial localization from a single firm's location decision?
- The firm reaps external economies of scale and reduced average operational costs arising from agglomeration and shared industry-specific infrastructure.Answer
- BThe firm achieves internal economies of scale resulting directly from the expansion of its own production capacity and administrative organization.
- CThe firm minimizes bulk transportation costs solely because woven textile output is significantly weight-losing relative to raw cotton inputs.
- DThe firm eliminates local market competition by obtaining exclusive monopolistic access to the industrial park's public utility infrastructure.
Answer
The firm reaps external economies of scale and reduced average operational costs arising from agglomeration and shared industry-specific infrastructure.
The correct answer accurately identifies that localization of an industry occurs when multiple firms producing similar goods concentrate in a specific region, creating external economies of scale such as access to specialized labor pools, growth of subsidiary repair trades, and shared infrastructure.
Step-by-Step Solution
Key Concept
Localization of Industry and External Economies of Scale