External economies of scale arise when the cost per unit
A) rises as the industry and the average firm grows larger.
B) remains constant over a broad range of output.
C) falls as the industry and the average firm grows larger.
D) falls as the industry grows larger and rises as the average firm grows larger.
E) rises as the industry grows larger and falls as the average firm grows larger.

Question

Quizplus · Accepted Answer

External economies of scale occur when the cost per unit decreases as the industry grows, but may increase for a firm if it becomes too large. This reflects the benefits a firm gains from the overall growth of its industry, such as improved infrastructure or a skilled labor pool, without the diseconomies of scale that might occur from the firm itself becoming too large.

External Economies of Scale Arise When the Cost Per Unit