Comparison of the Concept of Economies of Scale with Economies of Scope

4358 Words Feb 15th, 2004 18 Pages
Compare the concept of economies of scale with economies of scope.

Both concepts have same principle which is to lower the production cost, cost savings and increase the marketing competitive advantage in order to gain the high return. However, they have different approach and strategy to save cost and increase return.

The concept of economies of scale is cost savings that accrue from increases or expands in size or number. If two plants produce same unit, unit cost are lower in a large plant than in a small plant. Also, unit cost are lower in a large distribution center than in a small one, lower for large-volume purchases of components than for small-volume purchases. If firms are interested in getting or staying large, there are
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Most of time, when the price goes down, the sales will increases sufficiently. Then the total revenues increase accordingly. Yet, the firm's total revenues will decrease when the price go down in sometimes. The price elasticity of demand at price (P) and quantity (Q) is approximately the percentage change in quantity divided by the percentage change in price: ?Q/Q÷?P/P=(P/Q)(?Q/?P). The elasticity is invariant to change in scale of either price or quantity as the elasticity is the ratio of two percentage terms. Therefore, whilst the company' revenues are currently covered by total costs. And total revenue (TR) is equal to price (P) times quantity (Q). If the demand of this product is inelastic which is a 5% reduction in the price of the

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