Economics of Scope

ECONOMICS OF SCOPE:

        It is a theory that when a firm offers a variety of products instead of specializing in just one product, the average total cost of production is decreased. It means if a company makes more than one product, they can expect to see a reduction in the costs associated with the production. It occurs when products share common inputs and diversification leads to cost savings. It occurs where it is cheaper to produce a range of products rather than specialize in a handful of products.

EXAMPLES:

         Media, Newpaper, Google, Educational institutions etc

        Consider the example of educational institutions. Suppose the institutions of IIT's and IIM's where different courses like MBA,PGDM are provided. Here the institutions are not providing particular course seperately. They are making different courses available in the same institution.That is here two different courses under same institution, having the same campus, same staff, same infrastructure, same class books. So likewise the concept of economics of scope can be observed here where the institute is offering variety of programes.

ADVANTAGES OF ECONOMICS OF SCOPE FOR A FIRM:

• It enables the fiirm to respond to changing consumer preferences and product life-cycles.
• Automation, computer aided manufacture and technology makes it easier to produce variations on the same product.
• Diversification reduces the risk to the company.
• Customisation of products, a firm can produce a greater range of products to cater to every taste and preference.