Economics of Scope
Economics of scope is a term that refers to the reduction of
per unit costs through the production of variety of goods or services.
In economics of scope, firms try to take cost advantages by
providing a variety of related products to make full use of the inputs rather
than specializing in the delivery of a single product. Sharing and joint
utilization of inputs among similar products are the main reason for economics
of scale.
Economics of scope play an important role in firm’s decisions
of what combination of goods to produce.
Example: McDonald's can produce both hamburgers and French
Fries at lower average cost than what it would cost two separate films to
produce the same goods. This is because McDonald's hamburgers and French fries
share the uses of food storage preparation facilities and so forth during
production.
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