Question

Write a short hypothetical example, where a firm may have economies of scope, and at the same time exhibiting diseconomies of scales.

Answer 1

First let us know about the concepts a bit.

Economies of scope is that method where using the existing production unit one firm can expand it's production and hence profit.

Diseconomies of scale denotes the case where the increase in scale of production actually reduces profit.

For example say we are discussing about a shoe company who produces men's shoe and women's shoe. Now it plans to produce child section of the shoe using the same input . So it increases the scope of the company.

But now it is observed It is comparatively more costly for advertisement of the child section. At the same time it needs more management , more marketing than previous situation . Again it also needs more inventory area. So it becomes less profitable to the firm . So it's a diseconomies of scale.

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