II. Monopolistic competition
NEG as a decisive element that underpins the existence of scale economies in formal models.
The existence of increasing returns allows for the creation of larger plants that are in turn more efficient than smaller ones since when a firm decide to concentrate production in one single location the benefits of scale economies give it an advantage over spatially dispersed firms. (no concern with location choices)
Firms decide to produce in all locations where consumers are, thus distributing economic activity as an optimum.