Question

5. For each of the following examples, explain whether this is a case of external or internal economies of scale: a) Most musical instrument production in the U.S. is carried out by more than a dozen factories in Elkhart, Indiana. b) All Hondas sold in the U.S. are either imported or produced in Marysville, Ohio. c) All airframes for Airbus, Europe's only producer of large aircraft, are assembled in Toulouse, France. d) Hartford, Connecticut is the insurance capital of the northeastern United States.

Answer 1

Answer
a)
External economies of scale

One type of company at one place so the inputs costs reduce as the labor, material, and logistics will be the same so these costs decrease as the availability increases and transaction costs decrease.
The increase in the number of the same firm in the industry decreases the costs

b)
Internal economies of scale
The big plants decrease the per-unit costs as the unit of output increases so there are internal economies of scale as the scale increases

c)
Internal economies of scale

The large production provides internal economies of scale as the increase in the production decreases the per-unit cost as Airbnb is the only company competing with one firm and that can expand the output with lower costs.

d)
External economies of scale
The industry is concentrated so the input costs are lower so it is external economies of scale.