ACCA Applied Knowledge · Business and Technology · Microeconomic factors
Which of the following is an external economy of scale for a firm?
The clustering of industry firms in one region giving a skilled labour pool and specialist suppliers is an external economy. It stems from the industry's growth rather than any single firm's size, whereas the other options are internal economies.
- AA firm installs larger, more efficient machinery as output grows
- BA firm employs specialist managers as it expands
- CMany firms in the same industry locate in one region, leading to a pool of skilled labour and specialist suppliersCorrect
- DA firm obtains a lower interest rate on loans because of its size
Explanation
External economies arise from growth of the industry or its location, not of the individual firm. A skilled labour pool and specialist suppliers in a cluster benefit all firms there. The other options are internal economies: technical, managerial and financial.
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