Notes of unstructured notes Economies of Scope

Economies of Scope:

Economies of scope is used to reduce the cost per product by producing multiple products with same inputs. Economics of scale means percent % change in average cost of production following a 1% increase in output. Economics of scale gives rise to lower per unit cost of several reasons. First, specialization of labour and more integrated technology boost production volumes. Second, lower per unit cost can come from bulk order from suppliers, larger advertising price buys or lower cost of capital.

Example:

We have a milk booth shop in my hometown. In the beginning we used to sell only milk packets now we are selling additional products like paneer and butter. From this total cost on each product is decreasing like rent, labour cost and workers salary. This is called Economies of scope.