| Economies
of Scope |
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An
economic theory stating that the average total cost decreases as a
result of increasing the number of different goods produced.
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For example, McDonalds can produce both hamburgers and French fries
at a lower average cost than what it would cost 2 separate firms to
produce the same goods. This is because McDonalds hamburgers and French
fries share the use of food storage, preparation facilities, etc.
in production.
Another example is a company like Proctor & Gamble which produces
hundreds of products from soap to toothpaste. They can afford to hire
expensive graphic designers and marketing experts who can use their
skills across the product lines. Because the costs are spread out,
this lowers the average total cost of production for each product.
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