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Difficulty: MediumInternal and External Economies of Scale

Economies of concentration accrue to an individual firm as a direct result of expanding its internal plant size to utilize specialized machinery.

Answer: Answer

Answer

The statement is False. Economies of concentration are external economies resulting from the localization of an industry, whereas cost reductions achieved by an individual firm expanding its plant size are internal technical economies.
The statement is false because economies of concentration are external economies arising when firms in the same industry cluster in a geographical area, whereas unit cost reductions from an individual firm's plant expansion constitute internal technical economies.

Step-by-Step Solution

1
Analyze the source of savings described in the statement
The statement attributes the cost savings to an individual firm expanding its internal plant and using specialized machinery.
Determining whether the cost saving originates internally or externally is essential for correct classification.
2
Compare the description with the definition of economies of concentration
Economies of concentration (localization) are external benefits gained when many firms in the same industry locate in one region, whereas internal plant expansion yields internal technical economies.
External economies depend on industry-wide factors, not individual firm growth.

Key Concept

Internal vs External Economies of Scale
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Topics

Internal and External Economies of Scale

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