Economies of scale are the ability to produce more with the same amount of resources. Economies of scope are the ability to produce more with less resources.
Economies of scale are the ability to produce more as much as you can with the same amount of resources. Economies of scope are the ability to produce more as less as you can with the same amount of resources.
Economies of scale are often confused with economies of scope because both are based on the same idea. As you increase the amount of resources you have available, you can produce more with them. The thing about economies of scale is that they are relative. So if you do a good job with your resources, you can still produce more if the resources you have are less. One of the best examples of a successful economies of scale is a restaurant.
Economies of scope actually involves a lot more than just increasing the amount of space you have to sell. It has to do with the way you use those resources. If you only focus on selling the actual food, you won’t be able to increase your sales. Instead, you’ll have to increase the number of people who want to eat at your place.
So, when I use the word “economies,” I am referring to the scale of your operations, or more generally, the amount of resources you use.
Economies of scale also involve things like price (or in the case of a restaurant, cost). So when I say “economies of scale”, I’m referring to what you sell for. Now, in the case of restaurants, the idea is to sell food at a low enough price that someone who has never been to the place can spend a little money to eat there. This is the point where economies of scope come into play.
Economies of scope are the idea behind a small, boutique restaurant that only serves the most expensive items. A restaurant that serves the most expensive menu item will have a much larger capacity. This is a good thing if you want to sell food at a good price because it means you can serve more people at a given time. But it can also be a bad thing if you want to sell food at a loss because everyone wants the same thing and so you end up overstocking your dining room.
Economies of scale are the idea behind a large, well established restaurant that serves a wide variety of different menu items at the same price point. This is great if you’re serving hundreds of people and want to maximize your dining room, but it can be a bad thing if you’re serving a wide variety of people and thus your dining room is too small. Economies of scale are the opposite of economies of scope.