Economies of scope are changes in average costs because of changes in the mix of output between two or more products. This refers to the potential cost savings from joint production – even if the products are not directly related to each other.
For example a company’s management structure, administration systems and marketing departments are capable of carrying out these functions for more than one product. Warehouse facilities may be used to maximum advantage by storing a range of the company’s product lines.
In the publishing industry, there might be substantial cost savings from using a team of journalists to produce more than one magazine.
Further economies of scope occur when there are cost-savings arising from by-products in the production process. An example would be the benefits of heating from energy production having a positive effect on agricultural yields.
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