Economies of Scope
Reviewed by Aug 27, 2020| Updated on
Economies of scope represent scenarios in which the long-term marginal cost and average of a business entity, any organisation, or the economy of a country reduce because of producing certain goods and providing some services. In short, an economy of scope depicts that producing one item will lessen the value or worth of another item or goods which is related.
While economies of scale are represented by volume, the economies of scope are represented by the efficacy formed the range of goods and services. Economies of scale consist of measures to decrease the cost per unit or the average cost. The basic idea is to curb the production of one kind of goods.
Breaking Down Economies of Scope
Economies of scope are fiscal parameters which will go onto make parallel production of various goods and products that are more economical when compared to producing just one item.
Economies of scope may happen as a result of products that are being co-produced in the same process, the processes of production are supportive of one another, or the inputs that will produce the end product.
Process of Complementary Production
Economies of scope may directly result from the contact of the manufacturing processes. The agricultural practice of companion planting is the best example of complementary production and economies of scope.
For instance, the trio of beans, corn, and ground trailing squash are grown together in the parts of the Americas. Planting these three sister plants together will be yielding better crops and improves the soil’s productivity.
Similarly, there are many products that can be manufactured together. This will reduce the cost of production and will thereby reduce the overall cost of production.
Furthermore, since multiple products are grown together, it reduces the space needed and the cost of manufacturing, maintenance, and storage facilities.