Economies of Scope

The term economies of scope refers to the economies, or benefits, that firms derive by producing particular combinations of output. These exist if one firm can produce two separate products more efficiently than two firms can independently produce them separately. Economies of scope resemble economies of scale but operate in a different manner. Whereas economies of scale refer to the lower costs involved in producing larger quantities of a single type of good, economies of scope refer to the benefits generated from producing a mix of goods and are thus common in multiproduct firms. These arise essentially because a firm can use a given stock of factor inputs to generate a variety of related or complementary outputs. Average costs decline due to the mix of ...