Economies of Scope

AAA

DEFINITION of 'Economies of Scope'

An economic theory stating that the average total cost of production decreases as a result of increasing the number of different goods produced.

INVESTOPEDIA EXPLAINS 'Economies of Scope'

For example, McDonalds can produce both hamburgers and French fries at a lower average cost than what it would cost two separate firms to produce the same goods. This is because McDonalds hamburgers and French fries share the use of food storage, preparation facilities, and so forth during production.

Another example is a company such as Proctor & Gamble, which produces hundreds of products from razors to toothpaste. They can afford to hire expensive graphic designers and marketing experts who will use their skills across the product lines. Because the costs are spread out, this lowers the average total cost of production for each product.

RELATED TERMS
  1. Economies Of Scale

    The cost advantage that arises with increased output of a product. ...
  2. Pareto Analysis

    A technique used for decision making based on the Pareto Principle, ...
  3. Economics

    A social science that studies how individuals, governments, firms ...
  4. Marginal Rate of Technical Substitution

    The rate at which one factor has to be decreased in order to ...
  5. Absolute Advantage

    The ability of a country, individual, company or region to produce ...
  6. Marginal Propensity To Consume ...

    A component of Keynesian theory, MPC represents the proportion ...
Related Articles
  1. Economics

    Economics Basics

    Learn economics principles such as the relationship of supply and demand, elasticity, utility, and more!
  2. Economics

    What Are Economies Of Scale?

    Is bigger always better? Read up on the important and often misunderstood concept of economies of scale.
  3. Economics

    Will the consumer price index (CPI) be updated or revised in the future?

    Learn about the consumer price index (CPI) and understand how its purpose and calculation make it necessary to continually update and revise it.
  4. Economics

    Does the consumer price index (CPI) correlate with the change in price of goods and services?

    See why the consumer price index is a questionable proxy for inflation, and why it is unlikely to represent experiences with price changes accurately.
  5. Personal Finance

    Do minimum wage laws make labor a fixed or variable cost?

    Find out why labor is a classified as a semi-variable cost by the minimum wage laws; labor has elements of both fixed costs and variable costs.
  6. Economics

    Is the consumer price index (CPI) a cost of living index?

    Explore the consumer price index (CPI) and understand why it is not an actual cost of living index although it is often identified as one.
  7. Fundamental Analysis

    What is the affect of the invisible hand on consumers?

    Discover how consumers help initiate and benefit from the invisible hand of the market, which naturally coordinates trade in an exchange economy.
  8. Economics

    How does the invisible hand phenomenon affect investment markets?

    Read about how the invisible hand of the market coordinates investment markets and provides social benefit and why its effects are distorted along the way.
  9. Economics

    How is the invisible hand affected in a communist or socialist economy?

    Discover why the invisible hand of the market is compromised by socialist and communist economies, where the government controls the means of production.
  10. Economics

    What is the affect of the invisible hand on the government?

    Find out why government policy goals are often frustrated by the same forces that guide the invisible hand of the market towards efficient outcomes.

You May Also Like

Hot Definitions
  1. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  2. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  3. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  4. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  5. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  6. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
Trading Center