Theory question 104
Theory of Production(a) What is an industry?
(b) Explain the following: (i) division of labour (ii) economies of scale.
(c) Outline any four internal economies of scale.
Show the model answer
Model answer
(a) An industry is a group of firms producing the same or similar products.
(b)(i) Division of labour: breaking a production process into separate tasks, each done by a different worker who specialises in it.
(ii) Economies of scale: the cost advantages (fall in average cost) a firm or industry enjoys as its scale of production increases.
(c) Any four: technical; managerial; financial; marketing (bulk buying and selling); risk-bearing; research and development; welfare economies.
Explanation
Internal economies arise from the firm's own growth.