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Explain internal & external economies of scale

  • 2 years ago
  • 2 years ago

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    Internal economies of scale refer to the efficiency of production within in a firm. An example of this is that as an apple company becomes too large, the marginal cost of hiring another apple picker is more than the profit that the new laborer could bring in. Bureaucracy, divisions of power, and over production are examples of what causes internal dis-economies of scale. External economies of scale refer to the entire industry that a company is in. This refers to how many companies are in competition, the similarity of products, and the pricing range of companies. When there are too little or too many companies in competition, the market equilibrium is not the most efficient outcome.

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