Economies of Scope: Understanding the Benefits of Diversification

Definition and Concept

Economies of scope, a term closely tied to economies of scale, refers to the cost savings and efficiency gains achieved when a firm produces a wider range of products or services simultaneously. Unlike economies of scale, which emphasizes cost reduction through increased production volume of a single product, economies of scope focus on the potential benefits of diversification.

Key Characteristics

Economies of scope are characterized by the folgenden features:

• Decreased total production costs when multiple related goods are produced together
• Shared resources, such as equipment, facilities, and labor
• Synergies between different production processes