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Economies of scope

warehouse

Warehouses in economies of scope is utilized to its maximum advantage by storing a range of product lines and input materials.
Courtesy of AnnelNH

Economies of scope states that the average total cost of production declines as a result of increasing the number of different goods produced. Economies of scope can be achieved not only by a single firm that produces a variety of related goods and services, but also by a group of firms located very near each other in a district that produce related goods and services.

In economies of scope, firms should take cost advantages by providing a variety of related products to make full use of the inputs rather than specializing in the delivery of a single product. Sharing or joint utilization of inputs among similar products are the main reason for economies of scale.

For instance, one company's managerial team is capable of researching, marketing and promoting more than one product, thus this company can achieve economies of scope and utilize this team fully to bring down cost by delivering more than one product.

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