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Economics for Management Studies
Victor Yu

Economies of Scale and ScopeSome of the fundamental questions faced by the firm are How do we define our firmWhat activities do we do What are our firms boundariesThe horizontal boundaries of the firm refer to the size how much of the total product market will the firm serve and scope what variety of products and services does the firm produceThe horizontal boundaries of the firm depend critically on economies of scale and scope and learning curveEconomies of scale and scope are present whenever largescale production distribution or retail processes provide a cost advantage over small processesEconomies of scale exist whenever the average cost per unit of output falls as the volume of output increasesEconomies of scope exist whenever the total cost of producing two different products or services is lower when a single firm instead of two separate firms produces themIn general capital intensive production processes are more likely to display economies of scale and scope than are labor or materials intensive processesBy offering cost advantages economies of scale and scope not only affect the sizes of firms and the structure of markets they also shape critical business strategy decisions such as whether independent firms should merge and whether a firm can achieve longterm c
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