Final answer:
The concept of economies of scale illustrates how increased production decreases average cost up to a certain point. An economy can benefit from economies of scale if the demanded quantity is high enough, and international trade can help even small economies to achieve these benefits by exporting excess production.
Step-by-step explanation:
Economies of Scale and International Trade
The concept of economies of scale refers to the cost advantage that arises with increased output of a product. Economies of scale occur up to a certain point where the average cost of production does not reduce any further. When we sketch a curve with quantity produced on the horizontal axis and average cost of production on the vertical axis, we illustrate these economies. The curve would show a downward trend in the average cost as production increases up to the point of 40,000 semiconductors, indicating that producing more lowers the cost per unit due to economies of scale.
If the equilibrium quantity demanded is 90,000 semiconductors, the economy can fully benefit from economies of scale as this demand exceeds the 40,000 threshold. This would not be the case if the quantity demanded falls below 40,000, as the economy alone cannot take full advantage of economies of scale without the help of international trade. With international trade, even a small economy could produce a large enough volume to achieve economies of scale by exporting the excess production, leveraging competition, and offering a variety of products from different producers.
Examples in the world of semiconductors include countries like Taiwan and Korea, which have scaled up their production to benefit from economies of scale and then exported their chips globally. In cases of high demand, such as 500,000 semiconductors, multiple factories might be operating at this scale, thereby maximizing cost efficiencies and competing effectively in a global market.