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Economies of Scope

The concept of economies of scope; of recent development in the literature on applied economics. The basis argument is that cost-efficiency in production process is brought about by variety rather than volume. Thus, product diversification which is incorporated within the given scale of the plant offers better cost advantages to manufacturers. For example, in the Indian context, cost advantages to manufactures. For example, in the Indian context the policy of Broad-banking is primarily designed to exploit such economies of scope more than the economies of scale. It is suggested that a single firm can produce a given level of each product line relatively more cheaply than a combination of separate firm producing exclusively single products. Thus, there are positive economies of scope because of joint utilization of inputs. Some inputs are not finitely divisible capacity of this input. Therefore, when joint products or multiproduct, such underutilized capacities are fully exploited and multiproduct diversification may also accrue due to sharing of common intangible assets such as research and goodwill or due to free accessibility of public goods.

It follows that economy of scope exit where the same equipment can produce multiple products more cheaply in combination than separately. As computer controlled machine tool does not care whether it works in succession on a dozen units of the same design or in random sequence on a dozen units of the same design or in random sequence on a dozen different product designs-within, of course, a family of design limits. Change over times (and therefore, costs) are negligible, since the task of machine set-up involves little more than reading a computer programmer. Thus, computerization brings about enhanced feasibility, rapid response, immediate management information greater control, reduced wastage, greater predictability, advance technology, continuous product or process development and what you have: all these constitute economies of scope. The visible hand of such economies of scope has brought about the managerial revolution in modern business.

While taking about scope of producing a variety, we may also think of diseconomies of scope, i.e., over-exploration of scope, of production may yield cost disadvantages. For example, the same Maruti Van may be utilized as a Mobile Van serving fast food just as it can be utilized for a domestic leisure trip or as a rest house; but in these cases maintenance costs and conversion costs may go up. In the same way, a camera with complicated and sophisticated features, giving a wide range of scope for fine photography, may break down easily if it is mishandled. In the days of computers and telecommunication revolution, cyber crimes, the economic offence, constitute an example of diseconomies of scope.