Study Notes

Economies of Scope

Level:
A Level, IB
Board:
AQA, Edexcel, OCR, IB, Eduqas, WJEC

Last updated 7 Aug 2019

Economies of scope arise when unit costs are lower when a business produces a wider range of products rather than specialise in just one or a few products.

Examples of economies of scope

Supermarkets (e.g. Tesco): the unit cost of selling a product is reduced by offering a wide variety of products in-store. So for example, the costs of rent, salaries, heat & lighting are spread over significant number of different products.

E-commerce websites (e.g. Amazon): a similar effect to supermarkets. The significant fixed costs of systems development, web hosting, order fulfilment etc are spread over a huge range of different products.

Businesses with diverse product portfolios (e.g. Unilever): product development and marketing costs can be spread over a wide and large product range, thereby reducing unit costs.

What is the difference between "economies of scope" and "economies of scale"?

The two concepts are similar and sound very similar too.

Economies of Scope arise when unit costs are lower when a business produces a wider range of products rather than specialise in just one or a few products.

Economies of Scale arise when unit costs fall as output rises.

So economies of scale are all about how many different products are made...

whereas economies of scale are simply related to the total output of a business (which might be all one product!)

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