Economies of Scale and Economies of Scope

Economies of scale refer is a phenomenon where the business company's average product cost per unit of output reduces with the increase in the magnitude of the outcome that will be produced by the business company.

Economies of scope are applicable in the process whereby the situation of production of two or more products is cheaper than the business firm production of products separately.

Economies of scale

The economies of scale are divided into two types the internal and external;

Internal

This perspective of economies of scale argues that the cost of savings always benefits the business firm, regardless of the nature of the business or the situation of the market. The business organization has to put measures in place to promote products through market research and improvement of efficiency.

External

The business group is usually well organized so that it ensures systematic operation to enhance production that ensures benefit through maximum production for the market to meet the customer‘s demands.

The economies of scale have a factor called diseconomies that scale whereby the size of organization usually affect the production more to the complexity of management and operation.

Economies of scope

This is always put in place to make the production process cheaper to ensure a wide range of the output of products destined for the market which is produced together than to provide than individually. This promotes finance and marketing through the cross-selling of each product alongside another which enables increase market supply to meet market demands and the more the supply the increase of the capital for the business firm.