INTERNATIONAL TRADE EXAMINATION TEST
ECON 436 2026 COMPLETE QUESTIONS AND
100% SOLVED ANSWERS
◉ Increasing returns to scale Answer: -a production technology is
said to feature increasing returns to scale if an x% increase in inputs
leads to a more than x% increase in output
-implies that average costs are decreasing in output
-production is more efficient the larger the scale at which it takes
place
◉ External Economies of Scale Answer: -occur when cost per unit of
output depends on the size of the industry
-any industry with purely external economies of scale will consist of
many small firms and be perfectly competitive
-arise only locally, thus giving firms an incentive to concentrate
geographically
, -Ex: Silicon Valley, Hollywood, etc.
◉ Internal economies of scale Answer: -occurs when the cost per
unit of output depends on the size of a firm
-internal economies of scale result when large firms have a cost
advantage over small firms, causing the industry to become
imperfectly competitive
◉ Examples of external IRS Answer: -specialized suppliers
-labor market pooling
-knowledge spillovers
◉ Specialized suppliers Answer: -a large and concentrated industry
may attract suppliers of specialized equipment, which increases the
productivity of each firm
◉ Labor market pooling Answer: -a large and concentrated industry
may attract a pool of workers, reducing employee search and hiring
costs for each firm
◉ Knowledge spillovers Answer: -workers from different firms may
more easily share ideas that benefit each firm when a large and
concentrated industry exists
ECON 436 2026 COMPLETE QUESTIONS AND
100% SOLVED ANSWERS
◉ Increasing returns to scale Answer: -a production technology is
said to feature increasing returns to scale if an x% increase in inputs
leads to a more than x% increase in output
-implies that average costs are decreasing in output
-production is more efficient the larger the scale at which it takes
place
◉ External Economies of Scale Answer: -occur when cost per unit of
output depends on the size of the industry
-any industry with purely external economies of scale will consist of
many small firms and be perfectly competitive
-arise only locally, thus giving firms an incentive to concentrate
geographically
, -Ex: Silicon Valley, Hollywood, etc.
◉ Internal economies of scale Answer: -occurs when the cost per
unit of output depends on the size of a firm
-internal economies of scale result when large firms have a cost
advantage over small firms, causing the industry to become
imperfectly competitive
◉ Examples of external IRS Answer: -specialized suppliers
-labor market pooling
-knowledge spillovers
◉ Specialized suppliers Answer: -a large and concentrated industry
may attract suppliers of specialized equipment, which increases the
productivity of each firm
◉ Labor market pooling Answer: -a large and concentrated industry
may attract a pool of workers, reducing employee search and hiring
costs for each firm
◉ Knowledge spillovers Answer: -workers from different firms may
more easily share ideas that benefit each firm when a large and
concentrated industry exists
