We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What are Economies of Scope?

Malcolm Tatum
By
Updated Feb 20, 2024
Our promise to you
WiseGeek is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At WiseGeek, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

Economies of scope have to do with the concept that the average total cost of production is influenced by the total units of different goods that are produced by a given business. This means that the production cost will begin to decrease as the number of individual units of each good produced are increased. The idea is that some of the resources used in the overall production process are relevant to more than one product and that sharing the cost of those processes among the different products will result in lower production costs per unit.

There is some similarity between economies of scale and economies of scope. Both involve attempting to make the most efficient use of available resources as a means of producing the most products for the lowest possible unit cost. What is different is that economies of scale are usually associated with the production of a single product, where economies of scope are focused on using some of the same resources and facilities to produce larger quantities of two or more products.

One easy way to understand how economies of scope function is to consider the operation of a fast food restaurant. Since restaurants of this type will usually include a menu that offers a variety of selections, it is important to identify resources that can be used in the preparation of all those offerings, as well as in the promotion of the different menu items. By utilizing the same food preparation areas, some of the same ingredients, and even making use of the same advertising strategies to promote the menu items, the business can produce each item for a lower cost than trying to use separate resources to produce and promote each of those items. The end result is more efficient use of available resources, lower overall production costs, and a higher net profit for the restaurant owner.

An effective tool that helps to promote the efficiency of economies of scope is known as bundling or product association. Using the example of the fast food restaurant, the business may promote a special that includes a burger or sandwich coupled with a drink and a side order of French fries, a salad, or some other side item featured on the menu. The idea here is to create an offering that makes use of more than one product and entices the customer to choose that offering over ordering individual products. While this may reduce the actual profit from each unit sold, it may in fact increase sales volume. This can often allow the seller to make more efficient use of resources and offset the sales price difference with relative ease.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including WiseGeek, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.
Discussion Comments
By burcidi — On Nov 30, 2013

@ysmina-- Yes, more profit and less risk. Economies of scope lead to more profit because having more products means reaching more consumers. A business also reduces risk through economies of scope, because if consumers don't like one product, the business will not go bankrupt because it has other products to fall back on. So the chance of success is greater.

Just to clarify though, there can be times when economies of scope disadvantage a business, such as when the costs of advertising different product become too much. This is called diseconomies of scope. So it's not enough for a business to produce multiple goods using the same resources, it also has to make wise decisions about advertisement, packaging, distribution, etc.

By ysmina — On Nov 29, 2013

So what's the benefit of economies of scope for a business? More profit?

By burcidi — On Nov 29, 2013

There is one major advantage of economies of scope that economies of scale doesn't have and that's variety for the consumers.

The problem with economies of scale is that businesses end up producing the same things, like the article mentioned, to cut costs. Economies of scope cut down on costs too, but without standardization and mass production. Mass production gives consumers only one or two types of products to choose from. I think that ultimately, this is bad for a business, because after a while, sales will start to go down.

Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
Learn more
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.