External increasing returns

Question 1

What does economies of scale imply?

Answer 1

Production is more efficient the larger the scale at which it takes place

OR

Unit cost being lower with larger output.

Question 2

What is the difference between external and international economies of scale?

Answer 2

External: when the growth of production occurs within the INDUSTRY

Internal: when the growth of production occurs within the individual FIRM

Question 3

What is meant by specialized suppliers?

Answer 3

smaller, more specialized firms producing technology to be sold into other firms, e.g. specialized machinery production and high-tech instruments

Question 4

What is dynamic increasing returns?

Answer 4

if average costs fall as cumulative output over time rises
–> head start bc of experience and knowlegde increasing over time

Question 5

infant industry argument?

Answer 5

Argument for using protectionism to help new companies in an experienced industry with a head start.

Question 6

What is established advantage?

Answer 6

When the AC(2) curve of one country lies below AC(1) of another - however, since AC(1) entered market first, its selling price is below the initial cost of AC(2).

Question 7

What are the 3 contributers to external economies of scale/decreasing AC?

Answer 7

a) Specialized Suppliers
b) Labor market pooling
c) Knowlegde spillovers