External economies and diseconomies
External economies and diseconomies of scale are the benefits and costs associated with the expansion of a whole industry and result from external factors over which a single firm has little or no control.External economies of scale include the benefits of positive externalities enjoyed by firms as a result of the development of an industry or the whole economy. For example, as an industry develops in a particular region an infrastructure of transport of communications will develop, which all industry members can benefit from. Specialist suppliers may also enter the industry and existing firms may benefit from their proximity.
External diseconomies are costs which are outside the control of a single firm and result of the growth of a specific industry. For example, negative externalities, such as road congestion, can result from the growth of an industry in a specific region. Resources may become exhausted and the price of resources may rise as demand outstrips supply.
