Question

3. Discuss economies of scope and give two examples of firms exploiting such economies. (Be specific) 4. List and describe the two "value reducing" diversification strategies identified in Topic 5.

Answer 1

3) Economies of scope is concept wherein a simultaneous manufacturing of two or more different products is more advantageous and cost effective rather than outsourcing or being produced by two different units. It helps to reduce the average cost of production for both units.

Example:

• Colgate manufactures Toothpaste but also make Laminate tubes used to pack toothpaste as it helps them to utilize common warehouse, machinery and reduce inventory. Thus, helping to reduce total cost
• McDonald prefers to make both burger as well as French fries as they can use the common food storage and preparation facilities for production