Answer to Question #310434 in Microeconomics for jas

Question

Is it possible for a two-

product firm to enjoy economies of scope but not economies of scale and vice versa?

Answer 1

Economies of scale can only be enjoyed by a firm that produces only one type of a product and specializes in them. Economies of scope involves a company dealing with two or more products making them to save on the average cost of producing those goods. Economies of scale provide a competitive edge that a firm has on its product it has specialized on producing. This is not the case om a two-product firm because their main aim is to reduce the average cost of production of the two products. Therefore, economies of scope and economies of scale cannot co-exist because one involves reducing the cos of production of a specialized product while the other involves reducing the cost of production of two products being produced by the same resources. Therefore, it is product for a two-product firm to enjoy economies of scope and not economies of scale.