18 Economies of Scale, Part 3

18 Economies of Scale, Part 3 - Economies of Scale, Part 3...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
1 1 Economies of Scale, Part 3 • External Economies of Scale – The Theory of External Economies of Scale – External Economies and Increasing Returns – External Economies and Trade – Trade and Welfare – Dynamic Increasing Returns 2 Theory of External Economies • When economies of scale apply at the level of the industry rather than at the level of the individual firm, they are called external economies . 3 Theory of External Economies There are 3 main reasons why a cluster of firms may be more efficient than an individual firm in isolation. 1. The ability to support specialized suppliers . 2. The ability to allow labor market pooling . 3. The ability to foster knowledge spillovers . 4 Theory of External Economies 1. Specialized Suppliers: In many industries, the production of goods and services—and to an even greater extent, the development of new products—requires the use of specialized equipment or support services.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 5 Theory of External Economies 1. Specialized Suppliers: –A n individual company in isolation does not provide a large enough market for specialized service suppliers to stay in business. localized industrial cluster can solve this problem by bringing together many firms that collectively provide a large enough market to support a wide range of specialized suppliers. 6 Theory of External Economies 2. Labor Market Pooling: A cluster of firms can create a pooled market for workers with highly specialized skills.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 02/25/2012 for the course ECON 181 taught by Professor Kasa during the Spring '07 term at University of California, Berkeley.

Page1 / 8

18 Economies of Scale, Part 3 - Economies of Scale, Part 3...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online