Question

A trucking firm hauls loads of different sizes between different cities. Use of large scale direct hauls are cheaper and more profitable than individual hauls by small truckers. Further the question arises as to whether a large trucking firm enjoys cost advantages in operating in both direct quick hauls and indirect lower but less expensive hauls. Explain the concept of economies to scale and economies to scope with reference to the above situation.

Answer 1

Here we are talking about trucking firm.the work of this firm is to haul loads of different sizes between different cities.

Lets understand economies of scale and economies of scope.economies of scale arises when firm lowers its average cost of productiin by expanding the output of the firm.economies of scope arises when a firm produces more than one product and lowers its average cost of production by expanding the output of the firm.so the difference between both these concepts is that economies of scale is related to one product and economies of scope is related to multiple products.

Use of large scale direct hauls or individual direct hauls,doesnt matter.because large scale direct hauls is economies of scope and individual direct hauls is economies of scale.

So there are less expensive hauls and expensive hauls.in which of them we will have cost advantage?in both of them because cost advantage will be in both but cost advantage in large scale hauls will be greater than cost advantage in individual hauls.