chapter  12
39 Pages

Industrial structure and trade in the global economy—businesses without borders

ByJoseph P. Daniels, David D. VanHoose

Industrial organization is the study of the structures of and interactions among firms and markets. Traditionally, industrial organization economists focused their attention on firm and market structures within nations. One of several reasons that industrial organization has become an international subject is the significant growth of intra-industry trade. A key factor influencing the optimal size, or scale, of a company is its long- run average cost, which is the ratio of its total production cost to its output when it is able to adjust quantities of all factors of production, including capital as well as land, labor, and entrepreneurship. A typical company finds that as it increases its size, initially it experiences economies of scale. As it raises its scale of operations further, however, it eventually begins to experience higher long-run average costs and dis-economies of scale. An industry limited to producing and selling only within a single nation's borders may be unable to attain its minimum efficient scale.