Question

How are internal and external economies related?

Options

• They are completely separate and unrelated

• Internal economies apply only to small firms, external only to large firms

• External economies to one firm may be internal economies to another

• External economies increase costs for all firms

Answer 1

External economies to one firm may be internal economies to another

Explanation: 

The same cost advantage can be internal for one firm and external for another, showing interrelation.