The existence of external economies of scale
A) may be associated with a perfectly competitive industry.
B) cannot be associated with a perfectly competitive industry.
C) tends to result in one huge monopoly.
D) tends to result in large profits for each firm.
E) focuses more on individual firms than the industry as a whole.

Question

Quizplus · Accepted Answer

External economies of scale refer to cost savings that an industry or group of firms enjoy when they expand in size. This often results in lower costs for individual firms within the industry, which can lead to greater efficiencies and potentially lower prices for consumers. In a perfectly competitive industry, firms are small and numerous, but external economies of scale can still exist through the sharing of resources or infrastructure, such as transportation or communication networks. Therefore, option A is the correct answer. Option B is incorrect because external economies of scale can exist in a perfectly competitive industry. Option C is incorrect because external economies of scale do not necessarily lead to a monopoly. Option D is incorrect because external economies of scale do not automatically result in large profits for each firm. Option E is incorrect because external economies of scale focus on the industry as a whole rather than individual firms.

The Existence of External Economies of Scale