Internal economies of scale means that
A)firms are experiencing lower average production costs due to a geographical concentration of firms in their industry that make it cheaper and easier to hire highly specialized workers and inputs.
B)firms will have lower profits after international trade begins, because costs will be higher than when they just focused on the domestic market.
C)consumers will have less choices once trade begins, because firms will be squeezed out of the market.
D)expanding the size of the market the firm serves reduces overall per unit costs, since the firm can spread costs over more output.

Question

Quizplus · Accepted Answer

Internal economies of scale refer to the cost advantages that a firm can achieve by increasing its scale of production. This can result from factors such as specialization, improved technology, and increased bargaining power with suppliers. As a firm expands its production and increases its market share, it can spread fixed costs over a larger output, leading to lower average costs. This relationship between scale and average costs is known as economies of scale. Thus, choice D is the correct answer. Choices A, B, and C are incorrect as they do not accurately describe internal economies of scale.

Internal Economies of Scale Means That