11.
Explanation
Internal Economies of Scale and External Economies of Scale are two related concepts in economics that deal with the cost advantages and disadvantages associated with the size or scale of production in a firm or industry. On the other hand, Internal Diseconomies of Scale and External Diseconomies of Scale refer to the increase in costs as a result of expansion. Here’s how they differ:
Internal Economies of Scale:
1. Within a Firm : These economies occur within an individual firm as it grows in size and scale of production.
2. Cost Reduction : As a firm expands its operations, it can take advantage of factors like specialization of labour, efficient use of machinery, and bulk purchasing of inputs. These factors lead to cost reductions per unit of output.
3. Controlled by the Firm : The firm has direct control over these economies and can actively manage and implement strategies to achieve them.
External Economies of Scale:
1. Industry-Wide : These economies extend beyond a single firm and benefit all firms within a particular industry or region.
2. Shared Benefits : They arise from external factors like the availability of a skilled workforce, improved infrastructure, access to specialized suppliers, and knowledge spill overs. These factors reduce production costs for all firms in the industry.
3. Not Directly Controlled : Firms benefit from external economies, but they are not directly controllable by any single firm. They result from the overall environment or industrial cluster.
Internal Diseconomies of Scale:
1. Within a Firm: These diseconomies occur within a firm as it becomes too large and complex.
2. Cost Increase : As a firm expands beyond a certain point, coordination and communication challenges may arise. The costs of managing a larger organization can lead to inefficiencies and increased per-unit production costs.
3. Manageable : These diseconomies can be managed by the firm through restructuring, decentralization, or adopting more efficient management practices.
External Diseconomies of Scale :
1. Industry-Wide : These diseconomies affect all firms in an industry or region and result from external factors.
2. Shared Costs : They arise due to factors like congestion, increased competition for resources, or environmental degradation, which can raise costs for all firms in the industry.
3. Not Directly Controllable : Firms affected by external diseconomies have limited control over them since they stem from factors outside their immediate influence. They may need to adapt or relocate to mitigate these effects.
Conclusion : In internal and external economies of scale refer to cost advantages that arise from within a firm or within an industry, respectively, as they grow in size. In contrast, internal and external diseconomies of scale refer to cost disadvantages or inefficiencies that may emerge within a firm or an industry as they become too large or face external challenges.