A: Economy of scope and economy of scale are two different concepts used to help cut a company's costs. Economies of scope focuses on the average total cost of production of a variety of goods, whereas economies of scale focuses on the cost advantage that arises when there is a higher level of production of one good. Economies of scope is an economic concept that the unit cost to produce a product will decline as the variety of products increases. That is, the more different-but-similar goods you produce, the lower the total cost to produce each one. Economies of scope are economic factors that make it cheaper to manufacture a variety of products together instead of on their own.


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Economies of Scale vs Economies of Scope

This is often what motivates manufacturers to bundle products or to create a whole line of products under one brand. Although economies of economies of scope are often an incentive to expand product lines, the creation of new products is often less efficient than expected. The need for additional managerial expertise or personnel, higher raw materials costs, a reduction in competitive focus, and the need for additional facilities can actually increase a company's per-unit costs.


When this happens, it is often referred to as diseconomies of scope. In this example, economies of scope producer is passing on the cost advantage of producing a larger number of computer processors onto company ABC. This cost advantage arises because the fixed cost of producing the processors has the same fixed cost whether economies of scope produces or processors.

At lower marginal costs, additional units represent increasing profit margins.

There can also be synergies between products such that offering a range of products gives the consumer a more desirable product offering than would a single product. Economies of economies of scope can also operate through distribution efficiencies—i.

Economies of Scale vs Economies of Scope | Top 8 Differences

Further economies of scope occur when there are cost savings arising from byproducts in the production process, such as when the benefits of heating from energy production having a positive effect on agricultural yields. A flexible mix of products and product design Quick responses to market demandproduction design, and output rates Less waste and lower training which lead to a reduction in costs A reduction in risk — a company that diversifies its economies of scope line in many different markets can reduce its risk Economies of Scope vs.

Economies of Scale While economies of scope are characterized by efficiencies economies of scope by variety, economies of scale are characterized by volume.

For a period during the s, and again during World War II, Ford manufactured not only aircraft engines but also complete aircraft. General Electric also achieved significant economies of scope around turbine engine technology, providing the company with significant positions in power-generating equipment, nuclear power, and jet engines.

During the s General Dynamics provided economies of scope example of economies of scope within defense technology, specifically as it related to defense electronics. General Dynamics controlled the nation's largest nuclear submarine company, Electric Boat, the former Chrysler battle tank division, and Convair, manufacturer of F and F aircraft and numerous rocket systems.

Once the largest telecommunications company in the world, its recent forays into computer technology, wireless mobile telephone, and broadband data communications represent a transformation in which core competencies are being economies of scope to related businesses.

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