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What is the difference between economy of scale and economy of scope?

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posted Jan 28, 2015 by anonymous

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1 Answer

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economies of scale are the cost advantages that enterprises obtain due to size, output, or scale of operation, with cost per unit of output generally decreasing with increasing scale as fixed costs are spread out over more units of output.

economies of scope means "efficiencies wrought by variety, not volume or we can say average total cost of production decreases as a result of increasing the number of different goods produced.
Lets see how it works - McDonalds can produce both hamburgers and French fries at a lower average cost than what it would cost two separate firms to produce the same goods. This is because McDonalds hamburgers and French fries share the use of food storage, preparation facilities, and so forth during production.

answer Jan 29, 2015 by Vikram Luthra
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