Concentrating industries in one place is advantageous because there are gains in terms of_____________

Step 1: Analyze the question The question asks about the benefit of concentrating many industries (firms) in one location, which is called localization of industry.

Step 2: Explain the concept

• Internal economies of scale are cost savings that come from within a single firm as it grows, such as bulk buying, specialization of labour, and cheaper loans.
• External economies of scale are cost savings that benefit all firms in an industry because the industry is concentrated in one area. Examples are a pool of skilled labour, better roads and transport, nearby suppliers, shared banking and communication facilities, and research institutions.

When industries cluster together, as with the Ikeja industrial estate in Lagos or the Aba cluster for leather and footwear, the gains do not come from any one firm's size. They come from the shared environment around the firms.

Step 3: Evaluate the options

• A. Cost economies: This is a vague, non-standard term, so it is not the best answer.
• B. Economies of scale: This is the general term, and it covers both internal and external types. It is not specific to concentration in one place.
• C. Internal economies: These depend on the size of an individual firm, not on location, so this is wrong.
• D. External economies: These arise from the concentration of firms in one location, so this is correct.

Step 4: Answer The correct answer is D. external economies.

Tip: Link the words together. Location or concentration of industries means external economies. Growth of a single firm means internal economies. Ask yourself whether the benefit comes from inside the firm or from the surroundings.