Economies of Scope

Loading the player...

What does 'Economies of Scope' mean

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

BREAKING DOWN '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. Production Cost

    A cost incurred by a business when manufacturing a good or producing ...
  2. Unit Cost

    The cost incurred by a company to produce, store and sell one ...
  3. Production Efficiency

    1. An economic level at which the economy can no longer produce ...
  4. Operating Cost

    Expenses associated with the maintenance and administration of ...
  5. Variable Cost

    A corporate expense that varies with production output. Variable ...
  6. Marginal Cost Of Production

    The change in total cost that comes from making or producing ...
Related Articles
  1. Markets

    Understanding Marginal Cost of Production

    Marginal cost of production is an economics term that refers to the change in production costs resulting from producing one more unit.
  2. Markets

    Explaining Economies of Scope

    Economies of scope is a theory that says that an increase in the variety of goods produced results in a decrease in the average cost of production.
  3. Markets

    What Consumers Want From McDonalds

    McDonald's is struggling to win back customers who have run off to premium hamburger restaurants. What can the fast food giant do to regain its popularity?
  4. Markets

    All-You-Can-Eat Fries Is a No-Go at McDonald's

    While a number of company-wide innovations at McDonald's (NYSE: MCD) have come as a result of franchisee experimentation, such as its Filet-o-Fish sandwich (which came in response to Catholic ...
  5. Markets

    Is All-You-Can Eat Fries Next for McDonald's?

    McDonald's (NYSE: MCD) sees a potential future where not only will it offer table-side service, it will also offer all-you-can-eat French fries. That idea actually reverses course for the company, ...
  6. Markets

    What Are Economies Of Scale?

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

    Has McDonald's Peaked?

    McDonald's has been a reliable investment for many years, but all trends eventually change course.
  8. Markets

    Capital Expenditures (CAPEX)

    Learn more about what it costs to produce goods.
  9. Managing Wealth

    If You Had Invested Right After McDonald's IPO

    Find out how much money you would have if you purchased 100 shares during McDonald's IPO, and learn how much you would have received in dividends in 2014.
  10. Markets

    Does McDonald's Offer Value to Shareholders?

    McDonald's wants to transition from a fast-food restaurant known for cheap food to a fast-food restaurant known for offering value. Will it work?
RELATED FAQS
  1. What is the difference between economies of scope and economies of scale?

    Learn about economies of scope and economies of scale, the difference between the two economic concepts and how they offer ... Read Answer >>
  2. Do production costs include the marginal cost of production?

    Learn more about marginal costs of production and production costs. Find out how businesses can use marginal cost calculations ... Read Answer >>
  3. How is the marginal cost of production used to find an optimum production level?

    Understand more about production cost calculations, and specifically how the marginal cost of production is used to determine ... Read Answer >>
  4. How valid is the notion of economies of scope?

    Gain an understanding of how economies of scope work, why they appear to be a viable concept and under what circumstances ... Read Answer >>
  5. How do fixed and variable costs each affect the marginal cost of production?

    Learn about the marginal cost of production, how to calculate the marginal cost, and how fixed costs and variable costs affect ... Read Answer >>
  6. What are the different types of costs in cost accounting?

    Learn about the different types of costs associated with cost accounting, such as direct, indirect, fixed, variable and operating ... Read Answer >>
Hot Definitions
  1. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  2. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  3. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  4. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  5. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  6. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
Trading Center