Question

Which of the following is true regarding the relationship between returns to scale and economies of scope? A. There is no definite relationship between economies of scale and economies of scope. B. A firm experiencing economies of scope must also experience increasing returns to scale. C. Economies of scale and diseconomies of scope must occur together. D. A firm experiencing decreasing returns to scale must also experience diseconomies of scope.

Answer 1

Answer:

Letter A is correct. There is no definite relationship between economies of scale and economies of scope.

Explanation:

An economy of scale is based on increasing production and lowering average product costs. This occurs when the company already operates with existing production costs and therefore increasing production consequently reduces the average cost of the product. A scope economy has the average cost reduction by producing more than one product produced together.