Economies of Scale vs Economies of Scope

Economies of Scale vs Economies of Scope Differences

Economies of scale and economies of scope are both concepts of economics. And they both are very useful to a business that wants to grow and serves its customers better.

• 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 is a comparatively new approach in business economics and strategy. 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

Economies of scale and economies of scope both facilitate in reducing the cost of production for business. However, there are many differences between Economies of scale and economies of scope. Let’s have a look –

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Economies of Scale and Economies of Scope differences

Key differences between economies of scale vs economies of scope are as follows –

• 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 till the average cost per unit reaches 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.

Economies of Scale vs Economies of Scope (Comparison Table)

Basis for Comparison between Economies of Scale vs Economies of Scope	Economies of Scale	Economies of Scope
1.    Meaning	This saves the cost of production beyond a certain point.	This also saves the cost of production if a company produces varieties 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 same operation.
4.    Reduction due to	Bulk production.	Varieties in production.
5.    Old/new	Relatively old concept and is used everywhere.	Comparatively new concept and is recently being used by businesses.
6.    Strategy behind	Standardization of product.	Diversification of products.
7.    Uses	A huge amount of resources since the production happens in bulk.	A lot less resources because under one operation multiple products are produced.
8.    Example	Production of one type of smartphones in huge quantities.	Production of multiple food items by using 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 scale 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 one product, going for economies of scope to reduce the average cost per unit 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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