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Difficulty: EasyInternal and External Economies of Scale

External economies of scale are cost reductions that an individual business achieves strictly through the expansion of its own internal production capacity.

Answer: Answer

Answer

False
The statement is false because cost advantages achieved strictly through an individual firm's internal expansion represent internal economies of scale. External economies of scale depend on industry-wide developments, such as a localized skilled labor pool, shared research centers, or improved regional infrastructure.

Step-by-Step Solution

1
Define internal and external economies of scale.
Internal economies of scale refer to cost reductions enjoyed by a single firm as a direct result of increasing its own scale of operation. External economies of scale refer to cost reductions shared by all firms in an industry due to the growth and development of the industry as a whole.
Distinguishing between firm-level growth and industry-wide expansion is necessary to evaluate the statement.
2
Compare the statement against the definitions.
The statement attributes firm-specific operational growth to external economies of scale, which is incorrect.
Because cost savings resulting strictly from a single firm's expansion represent internal economies of scale, the statement is false.

Key Concept

Internal versus External Economies of Scale
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Topics

Internal and External Economies of Scale

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