The term economies of scope according to (Ag Decision Maker, 2007)refers to the enterprise idea of trying to decline the initial cost input of all resources for a single by spreading it to two or more other products. The rationale is to reduce the mean cost of production of a sole product at the expense of quantity (Wikimedia, 2015). The strategy tries to relate the cost of production, the final products produced and the profit margins obtained from selling the goods.
This business idea creates a diversification in a firm that ends up raising the profit margins apart from having other benefits. First, economies of scope create a system of flexibility regarding reducing costs (Goldhar & Jelinek, 2015). The use of computers and other electronic programmed media gives a major example of how the cost of reaching people with ideas and information carried out by the single unit of the invention with minimal cost. (Goldhar & Jelinek, 2015) mentions a steel industry that neutralizes stiff completion from Japan and the United States since its production relies not only on quantitative steel production but also the ease of flexibility of product design. (Ag Decision Maker, 2007) in farming, harvesting of crops does not necessarily need a harvester for every crop but only a change of the combine head for the different crops. During the early period according to (Wikimedia, 2015), some companies relied on economies of scope to boost their financial status. In this case, the pooling of labor resources enabled them to minimize the initial cost of production. Another area that shows benefits of this idea in a business is when a 3D printing machine produces many products at a lower cost rather than done separately.
References
Ag Decision Maker. (2007). Ag Decision Maker. Lowa: Lowa State University.
Goldhar, J., & Jelinek, m. (2015, November Monday). Plan for Economies of Scope.