Question

40. Under the reciprocal demand theory what types of countries gain more from trade? 41. 42 Most of what we can graph in this class are static examples. But there are also dynamic gains from trade. What might two of those be as it pertains to specialization. 43. 45. When costs are increasing, with trade and specialization how is the end production result different from the constant cost case as far as its predictions. 46 47. What is the difference between external and internal economies of scale? 48 49. 50. 51.

Answer 1

48).   Difference Between External and internal Economies of Scale

External Economies; The group of firms is called industry. When Industry is expanded they have some advantages. These advantages are enjoyed by all firms in the industry, so they are called external economies.

These economies are opened for all the firms it means they are not related to a single firm.

When the firms enjoy external economies the LAC (Long Run Average Cost curve) curve of the firms shifts downward.

Diagram:

2 Exte 上comon) e outpud

Internal Economies; When a firm expands its size of business or increase its output, it gets some advantages. They are called internal Economies.

These internal Economies are related to a single firm and not related to all other firms in the industry.

When a firm accrues internal Economies with the expansion of its scale of output, the LAC (Long Run Average Cost Curve) curve would fall.

Diagram:

2 output- Oudou