Asked by Isabelle Manaytay on May 07, 2024
Verified
What is the difference between economies of scale and economies of scope? How can a firm create economies of scope?
Economies of Scale
The cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output generally decreasing with increasing scale.
Economies of Scope
Practices enabling a company to efficiently produce a wider variety of goods or services.
- Comprehend the principles of economies of scale and economies of scope.
- Comprehend the methods by which businesses can reduce expenses through the application of economies of scope.
Verified Answer
MR
Muskaan RatraMay 09, 2024
Final Answer :
Compared to economies of scale,which are driven by producing more of a single product,economies of scope are realized when producing more than one product makes the production of all units in the assortment cheaper.Economies of scope exist whenever there are cost savings from using a resource in multiple activities carried out in combination rather than carrying out those activities independently.Firms can share tangible resources,share intangible resources,pool negotiating power,coordinate strategies among SBUs,implement vertical integration,and combine technologies.
Learning Objectives
- Comprehend the principles of economies of scale and economies of scope.
- Comprehend the methods by which businesses can reduce expenses through the application of economies of scope.