External economies of scale occur when an industry expansion results in lower unit costs for firms.

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External economies of scale refer to advantages that firms in an industry can gain from factors outside of their individual operations, such as infrastructure or skilled labor availability, that can lead to lower costs and increased efficiency for all firms in the industry as a whole. This differs from internal economies of scale which result from firms' own individual operations becoming more efficient as they grow.

External Economies of Scale Occur When an Industry Expansion Results