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Internal Economies and External Economies of Scale

Differentiate between internal economies of scale and external economies of scale

Internal Economies of Scale

Internal economies of scale occur within a firm. These economies arise when the cost of producing an item that your business sells decreases as the size of your business expands. That is, as a company grows larger and larger, overall expenses are bound to Decrease. These are

  • Managerial Economies
  • Technical Economies
  • Division of labour
  • Optimum use of recourses
  • Cheap credit

External economies of scale

External economies of scale occur outside of a firm but within an industry. For example, investment in a better transportation network servicing an industry will resulting in a decrease in costs for a company working within that industry. These are

  • Skilled labour
  • Helping industry
  • Banking facility
  • Research and development

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