Economies of Scale vs Economies of Scope

Economies of Scale and Economies of Scope Differences

Economies of scale are applied in businesses for a longer period of time and it takes place when an organization reaches a point where its cost of production starts to lower down and it basically happens in the cases of bulk production whereas economies of scope happens when an organization produces multiple varieties of products and as a result of this its cost of production starts to reduce.

Both are the concepts of economics. And they both are very useful to a business that wants to grow and serves its customers better.

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  • Economies of scale happen when a company reaches a point in production where the cost of production no longer increases; rather it gets reduced. It happens only in bulk production.
  • Economies of scope, on the other hand, happen when a company produces varieties of products and due to producing varieties of products, the cost of production gets reduced.

Economies of scale are being applied in business for a very long time. Economies of scope are a comparatively new approach in business economicsBusiness EconomicsBusiness Economics defines the economic issues faced by an entity. It determine how much is the impact of a certain change in an economic factor on the profitability or revenues of a given business and uses this analysis in steering the firm’s decision-making.read more and strategy. Both facilitate in reducing the cost of production for business. In this article, we will go through each of these concepts in detail and then we will do a comparative analysis between them.

Economies of Scale vs Economies of Scope Infographics

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Key Differences

  • Economies of scale are all about increasing the units of production. Economies of scope are all about increasing the varieties of production.
  • Economies of scale help a company look at the average cost per unit and then gradually increase the quantity until the average cost per unit reaches a minimum. Economies of scope are all about utilizing the infrastructure to reduce the average cost per unit.
  • Economies of scale concentrate on only one type of product. Economies of scope concentrate on varieties of products.
  • Economics of scale depends more on the production capacity of one product. Economics of scope depends more on the infrastructure of the company to produce multiple products under one head.
  • Economics of scale is a relatively old concept. Economics of scope is a comparatively new concept.

Comparative Table

Basis for Comparison Economies of ScaleEconomies of Scope
1. MeaningThis saves the cost of production beyond a certain point.This also saves the cost of production if a company produces a variety of products.
2. Reduces the cost of One product.Multiple products.
3. It’s about Producing one type of product in bulk.Producing multiple products under the same operation.
4. Reduction due toBulk production.Varieties in production.
5. Old/newRelatively old concept and is used everywhere.Comparatively new concept and is recently being used by businesses.
6. Strategy behindStandardization of product.Diversification of products.
7. UsesA huge amount of resources since the production happens in bulk.A lot fewer resources because under one operation multiple products are produced.
8. ExampleProduction of one type of smartphones in huge quantities.Production of multiple food items by using the same resources.

Conclusion

As a business, understanding and using both of these can be beneficial. But it is better that as a business you use these two prudently. You need to know where to use economies of scaleEconomies Of ScaleEconomies of scale are the cost advantage a business achieves due to large-scale production and higher efficiency. read more and where to use economies of scope.

If you are already selling 5 products under the head of your company, trying to achieve economies of scales isn’t a sagacious decision. Instead, in that case, if you go for economies of scope, it would be wiser. At the same time, if you know that as a company your core strength lies in producing just on

e product, going for economies of scope to reduce the average cost per unitCost Per UnitCost per unit is defined as the amount of money spent by a corporation over a period of time to produce a single unit of a specific product or service, and it takes into account two components in its calculation: variable and fixed costs. It aids in determining the selling price of the company's product or services.read more isn’t a prudent one. You need to know when and you need to know what.

Economies of Scale vs Economies of Scope Video

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