How do Economies of Scale Lead to Trading Advantages?

A second broad reason that intra-industry trade between similar nations produces economic gains involves economies of scale. The concept of economies of scale means that as the scale of output goes up, average costs of production decline—at least up to a point.

The concept of economies of scale becomes especially relevant to international trade when it enables one or two large producers to supply the entire country.

International trade provides a way to combine the lower average production costs that come from economies of scale and still have competition and variety for consumers.