Economies of scope
Topic: Production Function, Returns and Costs · NCERT: Beyond NCERT
Meaning
Economies of scope are cost savings when one firm makes several different products together more cheaply than separate firms could make each one. The savings come from sharing inputs such as a network, plant, brand or staff. Economies of scope come from variety of products, not from volume of one product. They help explain why firms often widen their product range.
Example
Amul makes milk, butter, cheese, ice cream and other products using one milk-collection network. Indian Railways runs both freight and passenger trains on the same track.
Don't confuse with
- Economies of scale: cost savings from producing more of the same product, so that long-run average cost falls as output grows.
Related concepts
- Long run average cost
- Long run marginal cost
- Economies of scale
- Internal economies of scale
- External economies of scale
- Diseconomies of scale
- Minimum efficient scale