Please complete tasks below. 1. For each of the following examples, explain whet

Question

Please complete tasks below. 1. For each of the following examples, explain whether it is a case of external or internal economies of scale: a) most musical wind instruments in the US are produced by more than a dozen factories in Elkhart Indiana b) All Hondas sold in the c) All airframes for Airbus, Europe's only producer of large aircraft, are assembled in Toulouse, France. d) Hartford, US are either imported or produced in Marysville, Ohio. Connecticut, is the insurance capital of the northeastern Us 2. Evaluate the relative importance of economies of scale and comparative advantage in cause the following a) Most of the world's aluminum is smelted in Norway or canada b) Half of the world's large jet aircrafts are assembled in Seattle c) Most semiconductors are manufactured in either the US or Japan d) Most Scotch whiskey comes from Scotland e) Much of the world's best wine comes from France 3. It is fairly common for an industrial cluster to break up and for production to move to locations with lower wages when the technology of the industry is no longer rapidly improving- when it is not longer essential to have the absolutely most modern machinery, when the need for highly skilled workers has declined, and when being at the cutting edge of innovation conveys only a small advantage. Explain this tendency of industrial clusters to break up in terms of the theory of external economies.

Explanation / Answer

1) Internal economies of scale refers to an increase in scale of a particular firm in an industry while external economies refer to increase in the scale for all the firms in the industry.

a) It is a case of external economies as there is increase in all the factories producing musical instrument in US.

b) Internal economies, refers to only one firm in the automobile industry(i.e. Honda)

c) External economies, increase in scale for all the firms producing airframes in France.

d) Internal economies increase in scale of single insurance firm.

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