External economies of scale
External economies of scale are cost reductions available to firms in an industry regardless of individual firm size, arising from growth of the entire industry. Individual firms benefit from industry-wide improvements without causing them directly.
Real World
Silicon Valley's concentration of tech firms means all companies there benefit from a shared pool of software engineers, specialist venture capital firms, and Stanford University research — advantages unavailable to an isolated tech startup in rural Wales.
Exam Focus
Distinguish external from internal economies of scale — external benefit all firms in the industry, not just one expanding firm.
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