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External economies and diseconomies of scale

Arise when an entire industry grows in size. Efficiencies may, for example, arise from the following: Infrastructure: If there is growth of an industry in a particular area eg Silicon Glen in Scotland, then this might mean the local government builds extra roads to facilitate transport to and from the area. This improvement in infrastructure will help to reduce transport costs for all firms in the area, perhaps even those not in that particular industry; Training: If a firm trains a particular worker and that worker is ÒpoachedÓ by another firm, the second firm gets the qualified worker but with no associated training costs, except the usual induction process. Diseconomies may occur when demand for resources for firms operating in these growth industries exceeds supply. For example, increased demand for labour, premises and / or supplies might force up the cost of wages, rent and materials / components as firms compete for these resources.

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