Why is it that if an industry is operating under conditions of internal scale economies then...

Why is it that if an industry is operating under conditions of internal scale economies then the resultant equilibrium cannot be consistent with the pure competition model?

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Question : Why is it that if an industry is operating under conditions of internal scale economies then the resultant equilibrium cannot be consistent with the pure competition model?

Answer

The Internal economy of scale is a measure of Industry production efficiency which is achieved as industry improves the output on drop in the average cost of a unit product .This economy scale type is due to the size of the industry which is controlled by the managements including the workforce , machinery , plant equipments, assembly lines, workforce etc. Under this operating condition , the resultant equillibrium is not consistent with the perfect competition model as their can be many variiable affecting the economy of the industry which include the exogenous change in the output of the industry . Also the variable such as workforce , machinery , plant size are independent of the entire industry . So that is why the resultant equilibria can change and may not be constant with the perfect market structure .Incase of perfect competitive model the supply curve of the firm is formed from the marginal cost and the marginal cost that produce the goods is eual to the price of the good .which means that all the consumers already enjoying the goods without scrifies with high values .Also In competitive structure of perfect model the industry produce identical products and All buyers are takers . With the Internal scale of economy these changes happen in the industry internally with the drop in the factors or inefficiency inside the industry therefore it causes the drop in the output of the industry and hence the resultant equilibrium is thus not consistent with the Perfect competitive model .

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Rahul Sunny answered 6 months ago

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