Economies of scope

This is usually taught that once we use a thing, before throwing we should think, how could it be recycled or we can bring the same thing again into use. This way, we can save our extra costs.

In business also, rather than producing different goods separately by specialised producers, we can be more cost effective if we merge the firms and produce those different goods under a single roof i.e, resources that are used in the production of one good can be used in the other goods too. Economies of scope do not mean that it is beneficial for a firm to produce different goods rather than one single good. It just means that it is profitable for the firms to merge rather than individually producing goods at their own respective costs.

But the merging of firms is possible only when factor inputs can be reused and assets could be shared.

Economies of scope have a completely different meaning from what is conveyed by the economies of scale. Economies of scale focus only on one product. It specifies an inverse relation between the average cost of a good and the level of output.

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