Question

When there are economies of scope between products, will selling off an unprofitable subsidiary have significant benefits for a firm? Please explain.

Answer 1

Economies of scope is a situation when a firm is producing two or more goods in the market, If the firm choose to produce just a single good in the market the cost of producing that good will be significantly higher. Here, as the firm is producing two goods in the market and one of them in making a loss closing it will increase the cost of producing the first good as well and the firm in the market will not make any considerable benefit.

If they are able to make a profit on the first good in the market because the production of that good is coupled with the other good which is making a loss in the market.