Summary economies of scale

Chapter 7 External Economies of Scale and the
International
Location of Production


Chapter 8 Firms in the Global Economy: Export
Decisions,
Outsourcing, and Multinational Enterprises ,
• Krugman, P.R., Obstfeld, M.: International
Economics: Theory and Policy,




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,Previe
w
• Types of economies of scale / Economies of
Scale and Market Structure
• Types of imperfect competition
 Oligopoly and monopoly
 Monopolistic competition
• Monopolistic competition and trade
• Inter-industry trade and intra-industry trade
• Dumping
• External economies of scale and trade
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,Introducti
on
• When defining comparative advantage, the Ricardian
and Heckscher-Ohlin models assume that
production processes have constant returns to
scale:
 When factors of production change at a certain rate,
output increases at the same rate.
 For example, if all factors of production are doubled then
output will also double.
• In practice, many industries are characterized by
economies of scale or increasing returns:
 Production is more efficient the larger the scale at which
it takes place.
 Where there are economies of scale, doubling the inputs
to an industry will more than double the industry’s
production. 3

, Table 1: Relationship of Input to
Output for a Hypothetical Industry




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