Managerial Economics

Economies of Scope and Joint Products

Most businesses provide multiple goods and services; in some cases, the number of goods and services is quite large. Whereas the motivation for providing multiple products may be driven by consumer expectations, a common attraction is the opportunity to reduce per unit costs. When a venture can appreciate such cost savings, the opportunity is called an economy of scope.

Of course, not just any aggregation of goods and services will create economies of scope. For significant economies of scope, the goods and services need to be similar in nature or utilize similar raw materials, facilities, production processes, or knowledge.

One type of cost savings is the ability to share fixed costs across the product and ...