Question

) Describe the two sources of economies of scale and how these economies of scale lead to intraindustry trade.

Answer 1

the two sources of economies of scale are

Internal Economies of scale - Internal Economies are the benefits that are derived due to the development of the specific firm.it occurs when average cost declines if the production is increased.

External economies of scale - It happens outside of the firm but within the industry. External Economies are the benefits that are derived if the number of firms in the industry increases.

The economies of scale leads to intra industry trade from lower opportunity cost and specialisation as the industry focuses on specific location or labor Firms benefit from Knowledge spill overs in both ways formal and informal.