Question

Explain why scale economies and scope economies are key determinants of the financial deals that a financial firm takes on. (typed)

Answer 1

Scale economies or economies of scale can be considered as the cost benefits that are gained while expanding the scale of production and with the financial deal that the firm takes on tells us that the firm was trying to expand the production levels and is there is economies of scale in play, the firm opts to go for it as the average cost will be reduced. Economies of scope is somewhat the same thing where the long run average cost and marginal cost decreases and if this is present the firm will benefit from it and so the investors and they opt to go for it.