Internal Economies of Scale vs. External Economies of Scale: Know the Difference
By Shumaila Saeed || Published on January 15, 2024
Internal Economies of Scale are cost reductions within a company due to growth, while External Economies of Scale occur outside a firm, in the wider industry or sector, benefiting multiple businesses.
Key Differences
Internal Economies of Scale arise from efficiencies within a company, such as improved production techniques or bulk purchasing of materials. External Economies of Scale, however, are gained from external factors like industry growth or technological advancements in the sector.
Shumaila Saeed
Jan 15, 2024
Internal Economies of Scale are specific to a company and result from its own expansion and operational efficiencies. In contrast, External Economies of Scale are enjoyed by all firms in an industry, often independent of their individual size.
Shumaila Saeed
Jan 15, 2024
A company achieves Internal Economies of Scale through factors like better labor specialization or advanced machinery. External Economies of Scale are realized through factors like improved infrastructure or a skilled labor market in the industry.
Shumaila Saeed
Jan 15, 2024
Internal Economies of Scale lead to a competitive advantage for a specific company. External Economies of Scale, on the other hand, benefit the entire industry, reducing costs for all competing firms.
Shumaila Saeed
Jan 15, 2024
Internal Economies of Scale are controllable by the company and can be a strategic goal. External Economies of Scale are generally beyond a single company's control and are influenced by broader economic or sectoral trends.
Shumaila Saeed
Jan 15, 2024
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Comparison Chart
Source of Efficiency
Within the company
Outside the company, in the industry or sector
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Jan 15, 2024
Influencing Factors
Operational efficiencies, production techniques
Industry growth, technological advancements
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Jan 15, 2024
Competitive Advantage
Provides individual company advantage
Benefits all firms in the industry
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Control
Controllable by the company
Influenced by broader economic or sectoral trends
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Jan 15, 2024
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Internal Economies of Scale and External Economies of Scale Definitions
Internal Economies of Scale
Economies achieved within a firm through expansion.
The firm's internal economies of scale increased as it expanded its market share.
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Jan 08, 2024
External Economies of Scale
Savings realized from overall industry growth and development.
The infrastructure development in the area created external economies of scale for local businesses.
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Jan 08, 2024
Internal Economies of Scale
Lower costs due to improved internal processes.
Streamlining the workflow brought significant internal economies of scale.
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Jan 08, 2024
External Economies of Scale
Economies arising from factors outside individual firms.
The skilled labor pool in the region contributed to external economies of scale.
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Jan 08, 2024
Internal Economies of Scale
Cost reductions due to company growth and efficiency.
The company achieved internal economies of scale by automating its production line.
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Jan 08, 2024
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External Economies of Scale
Cost reductions benefiting an industry due to external factors.
Technological advances in the sector led to external economies of scale for all firms.
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Jan 08, 2024
Internal Economies of Scale
Savings from increased production and operational efficiency.
Their internal economies of scale resulted from bulk purchasing of raw materials.
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Jan 08, 2024
External Economies of Scale
Industry-wide benefits from shared resources or innovations.
Shared logistics services in the industry created external economies of scale.
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Jan 08, 2024
Internal Economies of Scale
Cost benefits from a company’s large-scale operation.
The company's large production volume led to substantial internal economies of scale.
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Jan 08, 2024
External Economies of Scale
Cost advantages due to sector-wide advancements.
Government subsidies in renewable energy led to external economies of scale for all companies in the field.
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Jan 08, 2024
Repeatedly Asked Queries
What are internal economies of scale?
They are cost savings within a company due to its growth and efficiency improvements.
Shumaila Saeed
Jan 15, 2024
Can a small company achieve internal economies of scale?
Yes, through efficient operations and growth, even small companies can achieve them.
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Jan 15, 2024
Do external economies of scale benefit all industry players?
Yes, they generally benefit all firms in a particular industry.
Shumaila Saeed
Jan 15, 2024
Is bulk purchasing a part of internal economies of scale?
Yes, it's a common way for firms to achieve internal economies of scale.
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Jan 15, 2024
Can internal economies of scale reduce production costs?
Yes, they often lead to lower production and operational costs.
Shumaila Saeed
Jan 15, 2024
What causes external economies of scale?
They occur due to external factors like industry growth and technological advancements.
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Jan 15, 2024
Are external economies of scale under a company’s control?
No, they are influenced by broader industry or economic trends.
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Jan 15, 2024
How do internal economies of scale affect competition?
They can give a company a competitive edge over others in the same industry.
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Jan 15, 2024
Do external economies of scale depend on a company’s size?
No, they are independent of a company's size.
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Jan 15, 2024
What role does technology play in external economies of scale?
Technological advancements in an industry can lead to external economies of scale.
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Jan 15, 2024
Are internal economies of scale sustainable long-term?
Yes, if managed properly, they can provide long-term benefits.
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Jan 15, 2024
How do infrastructure improvements contribute to external economies of scale?
They can lower costs for all businesses in an area, leading to external economies of scale.
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Jan 15, 2024
Does industry collaboration result in external economies of scale?
Yes, collaboration and shared resources in an industry can lead to external economies.
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Jan 15, 2024
Is workforce training part of internal economies of scale?
Yes, effective workforce training can contribute to them.
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Jan 15, 2024
How do market conditions affect external economies of scale?
Market conditions like demand and supply can impact them significantly.
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Jan 15, 2024
Can internal economies of scale lead to lower prices for consumers?
Potentially, as they can allow a company to reduce its selling price.
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Jan 15, 2024
Can operational efficiencies create internal economies of scale?
Yes, improving operational efficiencies is a key factor.
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Jan 15, 2024
Can government policy lead to external economies of scale?
Yes, policies affecting an industry can create external economies.
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Jan 15, 2024
Do internal economies of scale require capital investment?
Often, yes, especially for technological upgrades or expansion.
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Jan 15, 2024
Are external economies of scale predictable?
They can be less predictable due to dependence on external factors.
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Jan 15, 2024
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About Author
Written by
Shumaila SaeedShumaila Saeed, an expert content creator with 6 years of experience, specializes in distilling complex topics into easily digestible comparisons, shining a light on the nuances that both inform and educate readers with clarity and accuracy.
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