Working group 5 10-10-2019
Internal; we focus on the firm, how bigger the firm, the lower the cost per unit. Less or no
competition, many big firms. Product differentiation, intra-industry trade, both countries can
specialize in both products.
If the companies are not the same, there will be differentiated products, there should be
gains.
External; we focus on the industry, the bigger the industry get, the lower the cost per unit.
Drivers: specialized suppliers, knowledge spillover, labor pulling. More competition, it
doesn’t matter how big you are, there are a lot of small companies.
There is a clustering effect; all the small companies in this industry want to cluster.
Question 1 (chapter 7, problem 1)
a) Large company producing on large scale; internal economies of scale.
b) They have a huge firm -> cost go low down -> internal
a. Technologic clustering -> external
c) You don’t need specialized people in Japan, they produce as many cars as they can,
so they use a huge factory -> internal
d) Food production is not really technical, so this is a difficult question -> external
Do they want to have a big firm (internal) or many firms with knowledge spillover, labor
pulling and specialized suppliers (external)?
If there is limited competition, it is a sort of monopolistic competition internal economies.
Hermes external economies clustering around Paris (can also be internal economies).
Toyota specific region in Japan clustering external economies. There is a lot of
competition, but more monopolistic competition (because of differentiated products).
Everything can be external and internal economies of scale; it is about the explanation.
Question 2 (chapter 7, problem 5)
a) Both countries have the same cost curve, so history determines who produces what.
Country one is producing everything and trading that to every country in the world.
Country one is producing everything, because they moved first.
Home will see the clustering of the industry
b) If they are producing for the whole world, the price will decline, and the quantity will
go up.
Forward-falling supply curve external economies of scale.
There is a lot of competition, the more quantity is produced, the lower the average cost.
We assume that if Home specializes in this product, Foreign will specialize in some other
good.
Internal; we focus on the firm, how bigger the firm, the lower the cost per unit. Less or no
competition, many big firms. Product differentiation, intra-industry trade, both countries can
specialize in both products.
If the companies are not the same, there will be differentiated products, there should be
gains.
External; we focus on the industry, the bigger the industry get, the lower the cost per unit.
Drivers: specialized suppliers, knowledge spillover, labor pulling. More competition, it
doesn’t matter how big you are, there are a lot of small companies.
There is a clustering effect; all the small companies in this industry want to cluster.
Question 1 (chapter 7, problem 1)
a) Large company producing on large scale; internal economies of scale.
b) They have a huge firm -> cost go low down -> internal
a. Technologic clustering -> external
c) You don’t need specialized people in Japan, they produce as many cars as they can,
so they use a huge factory -> internal
d) Food production is not really technical, so this is a difficult question -> external
Do they want to have a big firm (internal) or many firms with knowledge spillover, labor
pulling and specialized suppliers (external)?
If there is limited competition, it is a sort of monopolistic competition internal economies.
Hermes external economies clustering around Paris (can also be internal economies).
Toyota specific region in Japan clustering external economies. There is a lot of
competition, but more monopolistic competition (because of differentiated products).
Everything can be external and internal economies of scale; it is about the explanation.
Question 2 (chapter 7, problem 5)
a) Both countries have the same cost curve, so history determines who produces what.
Country one is producing everything and trading that to every country in the world.
Country one is producing everything, because they moved first.
Home will see the clustering of the industry
b) If they are producing for the whole world, the price will decline, and the quantity will
go up.
Forward-falling supply curve external economies of scale.
There is a lot of competition, the more quantity is produced, the lower the average cost.
We assume that if Home specializes in this product, Foreign will specialize in some other
good.
