External economies of scale
Definition. External economies of scale are reductions in the long run average cost of all firms in an industry that arise from the growth of the industry as a whole rather than the expansion of any single firm. They benefit every firm because the source of the cost saving lies outside the individual firm.
Common sources include a shared pool of skilled labour, specialised local suppliers, and improved infrastructure that develop as an industry becomes concentrated in one location.
This term belongs to Costs and Economies of Scale in A Level Economics. Read the full chapter for the diagrams, worked examples and exam technique.
Want to use external economies of scale for marks in the exam? Learn it in class or message the team.