What Are Economies of Scope?

Economy of scope (Economies of scope) refers to the economy brought by the scope of the manufacturer rather than the scale, that is, when the cost of producing two products at the same time is lower than the total cost of each product It is called economy of scope. As long as the cost of combining two or more products together is lower than producing them separately, there will be economies of scope.

Economies of scope

1. Refers to the fact that a region has concentrated the supply of manpower, related service industries, raw materials and semi-finished product supply, and sales in a certain industry, so that this region has a larger share of other industries than other regions Advantage.

2. It refers to the reduction of unit cost caused by the expansion of the business scope, the increase of product types, and the production of two or more products. versus

Input factor

Appears as production equipment with multiple functions, which can be used to produce different products, thereby improving the utilization of production equipment

For example, local telephone service, long distance service, and telecommunications products are related products; ISP, ICP, and IDC are also related products;

The driving force of industrial capitalism

From

Production cost advantage

This is mainly manifested in the allocation of fixed costs and reduction of variable costs. The allocation of fixed costs is mainly reflected in the allocation of fixed assets.

Definition of size and scope

Production activities with economies of scale, in the process of increasing the number of input factors, the proportion of increase in output exceeds the proportion of increase in input.

As far as the telecommunications industry is concerned, its scope of economic performance is reflected in the use of an integrated telecommunications physical network to transmit telephones, telegraphs and faxes, as well as computer data and various types of television images. It is definitely lower than the cost of independently establishing various networks.

Taking the radio as an example, it is obvious that it is much more economical for an enterprise to produce two models of radios than to produce only one model of radios.