Question

When the economies of scale are external to the firm, it can still operate under perfect competition.

This is true or false? why? provide illustrations using graphs when required. thanks

Answer 1

The statement is false

Reason

Internal economies of scale are firm-specific, or caused internally, while external economies of scale occur based on larger changes outside of the firm. Both types result in declining marginal costs of production, yet the net effect is the same. External economies of scale are generally described as having an effect on the whole industry. Thus, external to firm economies of scales leads to a few or possibly a single seller of that commodity.