Examples of external economies of scale
- Transport external E.O.S. Firms in one industry can share transport facilities and other social infrastructure which results into reduced average costs of transportation to each firm.
- Information external E.O.S. Firms in one area can share information collected from various sources e.g., information concerning market prices, new commodities on market, exchange rates and information concerning other business opportunities. Such collective information can help to reduce the average costs to each firm in the industry.
- Technical external E.O.S. Firms in one area can share specialized machinery and technical personnel, for example they can share maintenance facilities like workshops, garages etc. This implies sharing costs hence reduced average costs for each firm.
- Financial external economies of scale. Firms in one area can attract financial institutions like banks, building societies advertising agencies, insurance companies, etc. This makes it possible for individual firms to acquire loans at lower interest rates and to carry out other activities at reduced charges hence reduced average costs to each firm.
- Marketing external economies of scale. Firms under one industry can sell commodities and buy raw materials collectively in order to reduce on the costs and even enjoy huge discounts when buying. In addition firms may form marketing co-operatives which can assist in the selling of their products as an industry.
- Specialization external E.O.S. Firms under one industry can enjoy reduced average costs when they specialize in different in the production process e.g. within the same industry, some firms may provide raw materials used by other firms through the backward and forward linkages making each firm to operate at lower average costs
- Welfare external economies of scale. Firms under one industry can be able to establish certain social infrastructures like hospitals, schools, recreational centers, etc. which can improve on the welfare of their workers.
CATEGORIES Economics
TAGS Dr. Bbosa Science
