What is the Difference Between Economies of Scale and Economies of Scope?

Economies of scale and economies of scope are two different concepts used to help reduce a company's costs. The main differences between them are:

1. Focus: Economies of scale focus on the cost advantage that arises when there is a higher level of production of one good, while economies of scope focus on the average total cost of production of a variety of goods.
2. Cost Reduction: Economies of scale create cost savings by increasing production of a single product, spreading fixed costs over a larger output. In contrast, economies of scope create cost savings by spreading production costs over many different products.
3. Specialization vs. Diversification: Economies of scale concentrate on standardization of products and are applied in businesses for a longer period. On the other hand, economies of scope target the diversification of products and are a newer concept being used by businesses recently.
4. Infrastructure Utilization: Economies of scope are about utilizing the existing infrastructure to reduce the average cost per unit, while economies of scale rely on increasing production to achieve cost savings.

Real-world examples of economies of scope can be seen in mergers and acquisitions, newly discovered uses of resource byproducts, and when two producers agree to share resources or infrastructure. In contrast, economies of scale are often achieved by businesses that have a lower average cost because costs decrease as the level of output increases.

Comparative Table: Economies of Scale vs Economies of Scope

Here is a table comparing the differences between economies of scale and economies of scope:

Economies of scale focus on reducing the cost of producing a single product through increased output, while economies of scope aim to reduce the average cost per unit by producing multiple products using the same resources and infrastructure.