WAEC Economics 2019 Theory — Question 4

Model answer

(a) An industry can be defined as a combination/group of firms which produce similar products and/or outputs. (b)(i) Division of labour is the breaking down of a production process into different stages, such that each stage/part is handled by a particular individual, unit, or department. (ii) Economies of scale are the internal and external cost-saving benefits that accrue to a firm as it expands in size. (c) Internal economies of scale (any four): (i) Marketing economies — larger firms can buy inputs in bulk at a discount, employ an efficient, well-organized marketing strategy, and afford to advertise more. (ii) Risk-bearing economies — larger firms can diversify their products so they don't suffer unduly if one line of production becomes unprofitable. (iii) Financial economies — larger firms can more easily access loans from banks/financial institutions at lower interest rates, being more credit-worthy with more collateral. (iv) Technical economies — as a firm expands, it can afford more advanced technology and sophisticated plant/machinery, leading to increased output at a lower unit cost. (v) Managerial economies — larger firms can employ well-qualified, competent personnel to supervise various departments. (Any four of the above.)