The definition of economy of scope refers to the decrease in operating expense of two or more products or services jointly by a company. In a more formal way it could be ensured that the economy of scope is that the cost per manufactured unit of creating something individually is higher than manufacturing it together with other articles. That is, by doing it simultaneously it is possible to take advantage of production factors such as facilities, machinery, vehicles or tools.
The concept of economy of scope is very useful for companies when organizing business production. It also makes it easier for a company to achieve diversification.
Therefore, with the economy of scope, it would be possible to optimize the available resources to the maximum and achieve the Scale economyIt must be said that a totally different phenomenon can also arise with the joint production of two or more services or goods. There would be an increase in the average cost, making it more beneficial for the economy to manufacture the goods separately. This is what is known as diseconomies of scope.
Difference between economy of scope and economy of scale
There is a certain link between this term and economy of scale. In the latter case, the company reduces the average cost by increasing the quantity of a good manufactured, referring to a single service or good. For its part, in the economy of scope there is an increase in the production of the , although it only refers to an increase in the manufacture of two or more articles.
To better illustrate the concept, we can see an example of economy of scope. The example of transport companies is used quite frequently, which take advantage of the space in their vehicles to move their stocks and also distribute other different goods.