Economies of Scale vs Economies of Scope

Economies of scale and economies of scope are two different ideas both of which help the company to cut costs of production. Economies of scale focuses on costs that can be saved when there is an increased level of production of one good while economies of scope emphases on total average cost benefits when there is a production of variety of goods.

Economies of Scale

Costs can be saved because they are spread over large number of goods. Variable costs or the costs per unit. For example, to produce tap water, water companies should build huge network of pipes that stretch across wide areas. The costs associated are very high. However, since that will be shared by all the households in that area, the average costs come down.

A large business will have more cost savings with higher production levels.

Economies of Scope

Economies of scope concept is utilized by a company when uses its current resources to diversify into related markets. For example, a farmer may sell corn, meat, milk , chicken etc.

A mineral water selling company can use its marketing and distribution network to start producing vitamin water or flavored water etc.

Comments

Two Sides of Corporate Social Responsibility

Corporate Social Responsibility (CSR) -- it is the hottest topic out there. Should we trust that companies live up their values or there are any underlying motives? But, let's first start by exploring the definition of Corporate Social Responsibility (CSR). It is defined as the commitment of business to contribute to sustainable economic development, working with employees, their families, the local community and society at large to improve their quality of life ( World Business Council on Sustainable Development, 2000 ). So, CSR is based on the belief that companies make positive contributions to society. Some examples of CSR activities that organizations participate to be socially responsible are as follows: Philanthropic CSR- Companies donate to the needy via charities. Their donations include clean water programs, helping those affected by natural disaster etc. Environmental CSR- It is very important to limit pollution. Companies participate in CSR by lim...

Tesla's PESTEL Analysis

Political factors Tesla was able to set up its Gigafactory 3 in Shanghai, China. The factory is the first wholly owned foreign auto factory in China. This shift, where China allows a foreign manufacturer to build their facility without partnering with local companies may mean that Tesla can tap the Chinese market without paying high tariffs on US cars (CNBC). However, Tesla might still risk retaliation from Chinese consumers amidst US-China trade war. Economic factors More people are moving towards electric cars to save on the added expenses. All electric cars purchased during or after 2010 are eligible for a federal income tax credit of up to $7,500 ( US department of Energy ). These governmental incentives for electric automobiles could encourage people to buy more electric cars. Also, the US government has incentives for plug-in hybrid cars from $2,500- $7,500 based on battery capacity. These plug-in hybrid cars have high-capacity batteries that can be charged to ...

Rethinking SWOT Analysis.....

“Traditional SWOT analysis” … SWOT analysis is a powerful tool that is used by companies to build business strategies. It stands for Strengths, Weaknesses, Opportunities and Threats. SWOT analysis is usually done in an organized way using a 2*2 grid like pattern. By observing where they are, companies can develop strategies that help them to stand out from the rest. Strengths Strengths are positive attributes of a company. These are internal factors and can be controlled. The following questions help to identify strengths: What do you do better than others? What do customers/competitors see in you as your strengths? What physical assets or human capital do you see as strengths? What is the advantage that you have that competitors don’t? etc Weaknesses Weaknesses are negative attributes and can weaken strengths of the company. These are internal factors and can be modified for betterment. The following questions help to identify weakness: What issues c...

Kaivalyam

Search This Blog