Definition: The situation which describes the advantages of the lower long run average cost which is made in use by all the firms irrespective of their sizes, when the entire industry expands.
Types of External Economies are explained as follows
a) Concentration of Firms
When firms are localised in the specific area, they will jointly enjoy a pool of skilled workers and the social amenities together, which will result in the lesser average cost of production.
b) Sharing of Information and Research
Any important information published in the trade or technical journals will give advantage to the firms which have access to it. Cost of research can also be reduced if all firms combine effort to establish the research centre.
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