External economies of scale refer to the benefits that a company receives as a result of being located in a particular area. These benefits can include access to a skilled workforce, lower transportation costs, and access to raw materials. External economies of scale can help a company to lower its costs and become more competitive. How do you achieve technical economies of scale? There are two main types of economies of scale – technical and allocative. Allocative economies of scale arise when a firm can produce a good or service at a lower per unit cost than its competitors because it is able to purchase inputs at a lower price. Technical economies of scale arise when a firm can increase its output while keeping its per unit costs constant.
Technical economies of scale are achieved when a firm is able to increase its output without increasing its input costs. This can be done through a variety of means, such as increasing the efficiency of its production process, using more advanced technology, or increasing the size of its plant and equipment. All of these things allow a firm to produce more output without having to increase its input costs, and thus achieve technical economies of scale.
Allocative economies of scale, on the other hand, arise when a firm is able to purchase inputs at a lower price than its competitors. This can be done by exploiting economies of scale in the input market, or by negotiating better terms with suppliers. Allocative economies of scale allow a firm to produce a good or service at a lower per unit cost than its competitors, and thus give it a competitive advantage.
Which of the following is external economy?
In microeconomics, external economies (also known as spillover effects) are benefits or costs that affect a firm or individual but are not directly related to any actions taken by that firm or individual. External economies can be either positive (benefits) or negative (costs).
Positive external economies occur when a firm or individual benefits from being located near other firms or individuals. For example, a firm that is located near other firms in the same industry may benefit from economies of scale, which occur when the firm can take advantage of the other firms' resources and knowledge to produce its goods or services more efficiently.
Negative external economies occur when a firm or individual is adversely affected by being located near other firms or individuals. For example, a firm that is located near a polluting factory may suffer from negative externalities, which occur when the firm's production costs are higher because it has to pay for the pollution caused by the factory.
What are the types of economies of scale?
There are three primary types of economies of scale:
1. Internal economies of scale: These are economies of scale that arise within a single firm. They can be the result of the firm increasing the scale of its operations, or from the firm developing better methods of production.
2. External economies of scale: These are economies of scale that arise from the interaction of firms in an industry. They can be the result of the industry developing better methods of production, or from the industry benefiting from the presence of other firms (e.g. through the sharing of knowledge or the pooling of resources).
3. economies of scope: These are economies of scale that arise from the production of multiple products by a single firm. They can be the result of the firm being able to utilize its existing resources more efficiently, or from the firm being able to benefit from economies of scale in the production of one product that can be applied to the production of other products.
What are the economies of scale explain with illustrations? There are numerous economies of scale that can be identified and they all arise from different underlying causes. The most common and well-known economies of scale arise from the relationship between the size of a firm and the cost of inputs. For example, a large firm is able to negotiate lower prices for its inputs due to its increased buying power. Additionally, a large firm can often spread its fixed costs over a greater number of units of output, resulting in lower per-unit costs.
There are also economies of scale that arise from the way a firm produces its output. For example, if a firm has access to specialized equipment or technology, it can often produce its output more efficiently than a smaller firm without such access. Additionally, a firm that produces in large quantities can often benefit from economies of scale in its production process, as it can optimize its production process to maximize efficiency and output.
Finally, there are also economies of scale that arise from the way a firm sells and distributes its products. For example, a large firm can often sell its products at a lower per-unit cost than a smaller firm due to its greater economies of scale in marketing and distribution. Additionally, a large firm can often better exploit economies of scale in advertising and promotion, as it can reach a larger audience more effectively and efficiently. Which of the following is not due to external economies of scale? The answer is that technological change is not due to external economies of scale.