High School

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When the value of the products or services a firm sells increases as a function of the number of businesses that the firm operates in, ________ are said to exist.

A) economies of scope
B) vertical economies
C) economies of scale
D) diseconomies of scope

Answer :

When the value of the products or services a firm sells increases as a function of the number of business that the firm operates in, economies of scope are said to exist. The correct option is A) economies of scope.

Economies of scope refer to cost advantages that a business obtains due to a broader variety of products created using the same operations. This concept is critical for firms as it helps them reduce the per-unit cost when producing a combination of different goods. For example, a company that produces both healthcare products and cleaning supplies can share production facilities, marketing efforts, and distribution channels to reduce overall costs:

The production of multiple products lowers the average cost per unit.Sharing production resources and processes enhances operational efficiency.Broader product range increases market presence and customer base.Cost savings can be significant when similar resources are used across products.

While scope economies can provide competitive advantages, firms must be cautious of complexity and management challenges that may arise from offering too many unrelated goods.

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