Differentiate between external economics of scale and internal economics of scale of production

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Explanation:

Economies of scale refer to the benefits of lower per-unit costs enjoyed as a result of expanded production. It is the cost advantage experienced by increased output. Economies of scale can result from internal and external factors.

Internal economies of scale are specific to a particular business. As a business increases its output, the cost per unit decreases as a lower fixed cost per unit comes into play. Fixed cost remains constant in a period. A large output means the fixed cost is spread over many units.  Internal economies of scale make a business more competitive in the market. Increased efficiency and buying in bulk are factors that can lead to internal economies of scale.

External economies of scale affect the entire industry.  A general decline in the prices of inputs results in a decline in the marginal cost of production. Reduced labor costs and lower cost of capital result in a lower per-unit cost for producers. Improvements in road networks reduce transports cost for the entire industry. These external factors help all businesses experience economies of scale. External economies of scale don't increase a business's competitiveness as they are enjoyed by the entire industry

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