When the average cost of a typical firm declines as the output of the industry within a geographic area increases it is referred to as:

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External scale economies refer to the cost advantages that a firm may obtain due to the growth of the industry within a geographic area. As the output of the industry increases, certain costs may decrease such as transportation costs, access to a larger pool of skilled labor, and access to shared infrastructure or supplies. This can lead to a decrease in the average cost of production for each firm within the industry, resulting in external scale economies.

When the Average Cost of a Typical Firm Declines as the Output