The document discusses economies of scope, which refers to situations where producing two or more goods or services together results in lower costs than producing them separately. It provides several examples of economies of scope: 1) Dairy farmers can use whey, a byproduct of cheese production, as animal feed or a nutritional product, thereby reducing costs. 2) Companion planting of crops like corn, beans, and squash can increase yields while improving soil quality. 3) A restaurant can produce chicken fingers and fries at lower expense by sharing cold storage, fryers, and cooks between the two items. It also outlines how large, diversified companies and banks offering multiple financial services benefit from economies

1. HEMANT GUPTA
MBA/45007/19
HARSH SINGH
MBA/45010/19

2.  An economy of scope means that the
production of one good reduces the cost of
production of the related goods.
 It describes situations when producing two or
more goods or services together results in a
lower costs than producing them separately.

3.  Co- products or complementary in
production
 Have complementary production process
 Can share inputs for production

4.  Economies of scope can arise from co-
production relationships between the final
products.
 This is when production of one good
automatically produces another good as a
bi-product or a kind of side- effect of the
production process.

5. For example: Dairy farmers separate milk
into whey and curd with the curd going on
to become cheese. In the process they also
end up with a lot of whey, which they can
use as a high protein feed for livestock to
reduce their feed costs or sell as a
nutritional product to fitness enthusiasm
and weightlifters for additional revenue.

6. Economies of scope can result from direct
interaction of the production processes.
Companion planting in agriculture is a classic
example here, such as the three sisters
historically formed by native Americans. By
planting corn, pole beans, and ground
trailing squash together, the three sisters
method can increase the yield of each crop,
while also improving the soil.

7.  Production inputs(land, labour and capital) usually
have more than one use, economies of scope can
often come from common inputs to the production
of two or more different goods.
 For example:- A restaurant can produce both
chicken fingers and french fries at a lower average
expense than what it would cost two separate firms
to produce each of the goods separately. This is
because chicken fingers and french fries can share
the use of the same cold storage, fryers and cooks
during production.

8. Flexible manufacturing: A company’s ability to
quickly and effectively switch manufacturing
process to produce new products can lead to
economies of scope. The cost of switching is
low and multiple products can be produced
using the same resources.
Diversification: A company’s operational
expertise and specialization can be applied to
other products within the organization.

9.  For instance, Procter and Gamble is able to
produce a wide range of products because they
can afford higher marketers or designers who
can use the skill across products line spreading
out the product cost to many products lower the
cost of production of each one.
 Mergers: Sharing of research & development
expenses help drive down costs and allow
diverse portfolios of knowledge and products to
be established.

10.  Supply chain: Linking the supply chain ad
allowing cross- over communication between
wholesalers, distributors, etc. arises the
ability to eliminate costs. It is less expensive
to have businesses operate their supply chain
initiative same umbrella rather than to
operate independently.

11.  S.C= C(Q1) + C(Q2) – C(Q1Q2)
C(Q1,Q2)
 C(Q1) represents the cost of producing
output Q1, C(Q2) represent the cost of
producing output Q2 and C(Q1,Q2) represent
the cost of producing both outputs.
 Due to economies of scope, the joint cost is
less than the sum of individual costs.

12.  Economies of scale
 This saves the cost of
production beyond a
certain point.
 Reduces the cost of one
product.
 Its about producing one
type of product in bulk
Reduction due to
 Bulk in production
 Example: Production of
one type of smart phones
in huge quantities
 Economies of Scope
 This also saves the cost
of production if a
company produces
varieties of products
 Reduces the cost of
multiple products
 Its about producing
multiple products under
same operation
 Reduction due to variety
in production
 Example: Production of
multiple food items by
using same resources.

14. In Paper industry:
In the paper industry it is common for large
firms to produce their own pulp, the primary
ingredient in paper, before manufacturing the
paper goods themselves. However, smaller
firms may have to purchase pulp from others
at a higher net cost than the large companies
pay. The savings from producing both pulp
and paper would be an economy of scope for
the large production.

15.  Banks have economies of scope when they
offer multiple financial services at one place.
 Offering checking accounts, loans and
investment services together allows a bank to
spread the cost of its branches, staff, A.T.M,
and its internet site over all products instead
of having a separate infrastructure for each
product.

16. SBI provides multiple financial services at one place only
like.
 Acceptance of deposits(on term or at demand etc.) with
or without the interest rate.
 Purchase and sale of money (Including foreign currency
exchange)
 Advancement of loan.
 Opening and management of account.
 Providing services of keeping cashing and
transportation of money and values.
 All these such services are provide at one place only.
Through this SBI is able to minimize the cost of
providing services to the consumer and this helps in
profit maximization.

17. THANK
YOU