Economies of scale and Market structure Economies of scale can be either External The cost per unit depends on the size of the industry but not necessarily on the size of any one firm An industry will typically consist of many small firms and be perfectly competitive Internal The cost per unit depends on the size of an individual firm but not necessarily on that of the industry The market structure will be imperfectly competitive with large firms having a cost advantage over small Both types of scale economies are important causes of international trade Copyright C 2003 Pearson Education, Inc Slide 6-7Copyright © 2003 Pearson Education, Inc. Slide 6-7 Economies of Scale and Market Structure ▪ Economies of scale can be either: • External – The cost per unit depends on the size of the industry but not necessarily on the size of any one firm. – An industry will typically consist of many small firms and be perfectly competitive. • Internal – The cost per unit depends on the size of an individual firm but not necessarily on that of the industry. – The market structure will be imperfectly competitive with large firms having a cost advantage over small. • Both types of scale economies are important causes of international trade