Economies derived from large scale of business are ___________.
A
Internal
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B
External
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C
Both (A) and (B)
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D
None of the above
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Solution
The correct option is D Both (A) and (B)
The economies of scale can be grouped as:
(a) Internal Economies
(b) External Economies
Internal economies are those economies in production—those reductions in production costs—which accrue to the firm itself when it expands its output or enlarges its scale of production. The internal economies arise within a firm as a result of its own expansion independent of the size and expansion of the industry as a whole.
External economies are those economies which accrue to each member firm as a result of the expansion of the industry as a whole. An expansion of the industry may lead to the availability of new and cheaper raw materials, tools and machinery, and to the discovery and diffusion of a superior technical knowledge.