Skip to content

CA Foundation · Business Economics · Theory of Production and Cost

Which of the following is an example of an internal economy of scale for a manufacturing firm?

Bulk purchase of raw material at a discount is an internal economy of scale, because the saving comes from the firm's own larger size. Supplier clusters, better public transport links and local training institutes help every firm in the area, so they are external economies.

  1. ADevelopment of a specialised component supplier cluster near the firm's industrial area
  2. BBetter road and rail facilities built by the government in the region
  3. CLower per-unit cost from the firm buying raw material in bulk at a discountCorrect
  4. DA training institute opened in the town that supplies skilled workers to all firms

Explanation

Internal economies arise from the growth of the individual firm itself, such as bulk-buying discounts, specialisation or use of large machinery. Options A, B and D benefit all firms in the industry or area irrespective of the firm's own size, so they are external economies.

Did you get it right without looking?

One question tells you little. A timed set on Theory of Production and Cost shows your real accuracy, how long you take and where you lose marks.

Practise Theory of Production and CostFree diagnostic mock

More Theory of Production and Cost questions