Question

How can regional concentration of firms in an industry lead to external economies of scale? Give examples of these types of industrial clusters in the United States. Are they always beneficial?

Answer 1

External economies of scale means not within the organisation but inside the the industry. External economies reduces the economic cost of the company. It is related with the increase in the industry. It benefits all the firms in the industry. Because the cost depends upon the size of the industry not on the firm. Yes, regional concentration of firms in an industry leads to external economies of scale as if more and more firms will develop in the same area, it will form a industry which will benefits all the firms with in the industry.

In US, Des Moines has three main industrial cluster say, Financial, business and educational sectors. And in Indianapolis Real estate, Rental and leasing industry and many more.

Yes they are beneficial but not always. As they have very limited locations which results in to locate a company of an industry anywhere else. Secondly Company is not stable, because of the internal shortcomings, like poor management, or any hurdle in performance of the company. And lack of control can also be seen as an individual form cannot control directly that what's happening outside the firm, because of the dynamic nature of the industry.