Which type of cost reduction is available to all businesses as the industry grows?

The correct answer is external economies of scale. External economies of scale occur when the growth of an industry leads to a decrease in the costs for all businesses within that industry, regardless of their size. This can happen for several reasons, such as improved infrastructure, the establishment of a skilled labor pool, and the development of suppliers and services that benefit all industry participants.

As the industry expands, businesses can enjoy reduced costs due to these external factors, which can enhance competitiveness and profitability. For example, as more companies enter an industry, the region might develop better transportation facilities or an increase in suppliers who can provide raw materials at lower prices due to their increased scale of operations.

In contrast, internal economies of scale relate specifically to cost reductions that an individual firm experiences as it grows in size and production. Backward vertical integration and horizontal integration are strategic business decisions aimed at achieving growth or reducing costs but are not universally available to all businesses as an industry expands. Thus, external economies of scale is the most appropriate choice for businesses in a growing industry context.