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CMA Foundation · Fundamentals of Business Economics and Management · Means of Production

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

Bulk-buying discounts earned because the firm has expanded its own output are an internal economy of scale. Internal economies come from the firm's own growth. Skilled labour pools, shared infrastructure and local suppliers benefit the whole industry and are external economies.

  1. ADevelopment of a skilled labour pool in the industrial area where the firm is located
  2. BImproved road and rail links built by the government near the industrial cluster
  3. CGrowth of a specialised supplier of components near the industrial cluster serving all firms
  4. DAvailability of bulk-buying discounts on raw materials because the firm itself has expanded its outputCorrect

Explanation

Internal economies arise from the growth of the individual firm itself, such as bulk-purchase discounts from larger orders. A skilled labour pool, better infrastructure and local specialised suppliers benefit all firms in the area as the industry grows, so they are external economies.

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