Question

Read the article 'The Big, The Bad and the Beautiful' and discuss the followin the examples in the article, explain how firms create competitive advantage utilizing economies of scale and economies of scope. Provide other real life examples to support your answer.

Answer 1

Answer:-

Let us first understand the meaning of economies of scale and economies of scope.

Economies of scale

Economies of scale refers to the cut in the per unit cost of production by increasing the overall level of production

Economies of scope

Economies of scope is a process in which the unit cost of a single product got reduced by producing differents variety of such products.

So if a firm increase its production capacity it will definitely got the advantage of economies of scale as it will lead to decrease in the per unit cost of production which will allows the firms to reduce their market price of selling goods upto the mark of econmies of scale and as a result they will sell more by offering the lower price than the other firms offers and also by selling more

It is quite different in case of economies of scope as in this the per unit cost got reduced by producing different variety of such goods which implies that the firm can increase its market share by providing different variety of such good and also as different varieties are produced so the cost of producing one variety of good reduced which can be reduced in the market price of selling the good and hence sell more.