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

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

Getting a lower interest rate and bulk discounts because of the firm's own large size is an internal economy of scale. It arises from the firm's own expansion, whereas the other options benefit the whole industry and are external economies.

  1. AA new railway line built by the government lowers transport costs for all firms in the industrial area
  2. BA skilled labour pool develops in the town and benefits every firm in the industry
  3. CA large firm gets a lower interest rate and bulk discounts on raw materials because of its sizeCorrect
  4. DA supplier of components sets up near the industrial cluster and serves all firms

Explanation

Internal economies arise from the growth of the individual firm itself, such as bulk purchasing and cheaper finance. Options A, B and D benefit the whole industry and are external economies.

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