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JAMB Economics 1981 Question 5

Question 5

Theory of Production

External economies are

  1. A.the advantages accruing to a firm as a result of its expansion
  2. B.the advantages accruing to one firm as a result of the existence of other firms in the same locality
  3. C.benefits derived by a firm as a result of its own individual policy
  4. D.reaped only by agricultural firms
  5. E.bound to increase the costs of production whatever the circumstances.
Show the answer and explanation

Answer: B (the advantages accruing to one firm as a result of the existence of other firms in the same locality)

Explanation

External economies come from outside the firm, e.g. shared services and skilled labour that grow up when many firms of an industry are in one area.