Skip to main content

Internal and external economies and diseconomies of scale

External economies of scale are those that benefit the industry as a whole, especially as the industry grows. An example would be the concentration of industry, and the availability of specialised training, supply and maintenance services.

External diseconomies occur when this concentration becomes excessive. Everything is then in short supply. To check your understanding try the following two questions:


Question 1

Why are some industries, such as the automobile and aircraft industries, and the petrochemical industry, dominated by a few large companies but others, like the local retail outlets, operated by a large number of small firms?

Have a think about the answer to this and jot down some notes and then follow the link below to compare your notes with ours.

Question 1 - answer

Question 2

Why, even within the petrochemical industry, are all firms not of the same size?

Question 2 - answer