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Evaluate the following statement. If a firm is facing internal diseconomies of scale, it must be in an industry which is experiencing external diseconomies.

Assume demand is decreasing in a contracting industry. Draw three supply and demand diagrams that reflect this, with the first representing an increasing-cost industry, the second representing a decreasing-cost industry, and the third representing a constant-cost industry. Assume that prior to the decrease in demand, the industry is in competitive long-run equilibrium. Include the long-run industry supply curve in each diagram and explain what is happening in each scenario. Specify whether each diagram represents external economies or external diseconomies.

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