10 orders for PHP 1,000 500 orders for PHP 1,000

Raw Materials ids 250 per furniture PHP 2,500 Raw Materials ids 250 per furniture PHP 125,000
Rent Fee PHP 50,000 Rent Fee PHP 50,000
Revenue/Sale PHP 10,000 Revenue/Sale PHP 500,000

COST PER UNIT: PHP 5, 250 (52,500/10) COST PER UNIT: PHP 350 (175,000/500)

Economies of Scope vs. Economies of Scale

ECONOMIES OF SCOPE ECONOMIES OF SCALE

 Economies of scope is relatively a
new approach to a business strategy
and is heavily based on the
development of high technology.
 Economies of scale have been known for
a long time as a major factor in
increasing profitability and contributing
to a firm’s other financial and operational
ratios.

 Economies of scope is linked to

benefits gained by producing a wide  Economies of scale is all about the
variety of products by efficiently benefits gained by production of large
utilizing the same operations. volume of products.

ECONOMIES OF SCOPE
ECONOMIES OF SCALE
 Economies of scale are cost advantages reaped by companies when production becomes
efficient. Companies can achieve economies of scale by increasing production and
lowering costs. This happens because costs are spread over a larger number of goods.
Costs can be both fixed and variable.
(So, economies of scale is frequently used in microeconomics to be describe the situation in
which as your business grows, you can produce at a lower cost per unit. Sinasabi rito na mag-
iincrease ang savings ng cost mo if nag iincrease rin yung output produce mo. So more
production

2 TYPES OF ECONOMIES OF SCALE

 Internal Economies
 External Economies

INTERNAL ECONOMIES
 Purchase Economies - Lower average cost for buying large quantity.
  Technical Economies - Large capital equipment with high fixed cost.
 Financial Economies - Large firms get better interest from banks.
 Marketing Economies - Advertising campaign is more efficient for high sales.
 Managerial Economies - Division of labor to manage and supervise production.
 Risk-Bearing Economies - Ability to spread risk across large a number of different
products as a backup.

EXTERNAL ECONOMIES
Economies of Concentration – When Large number of firms concentrate in an area then these
firms get some common benefits.
Economies of Specialization – Arise when suppliers and workers start to focus on a particular
industry due to its size.
Economies of Information – Firms collaborate with universities and other research facilities
to improve their products and processes.
Lobbying Economies – Arise from increase in bargaining power as industries become more
significant.

ECONOMIES OF SCOPE ECONOMIES OF SCALE

 Economies of scope is relatively a
new approach to a business strategy
and is heavily based on the
development of high technology.
 Economies of scope are linked to
benefits gained by producing a wide
variety of products by efficiently
utilizing the same operations.
 Economies of scale have been known for
a long time as a major factor in
increasing profitability and contributing
to a firm’s other financial and
operational ratios.
 Economies of scale are all about the
benefits gained by production of large
volumes of products.

ECONOMIES OF SCOPE ECONOMIES OF SCALE

Reduction of Average Cost in AS TO REDUCTION Reduction of Average Cost
producing multiple products. per product
Variety of Products COST ADVANTAGE Large Volume (Bulk)
Relatively New STRATEGY Old Strategy
Diversification INVOLVES Standardization
Comparison:

 While both economies of scale and economies of scope aim to reduce costs, they
operate in different dimensions.
 Economies of scale focus on cost advantages gained from increased production
volume or scale, while economies of scope focus on cost advantages gained from
producing a variety of goods or services.
 Economies of scale are typically associated with expansion within a single product
line or industry, whereas economies of scope involve diversification across
multiple product lines or industries.
 Economies of scale are often driven by factors like specialization, technological
improvements, and efficient resource utilization, while economies of scope rely
on synergies between different products or services offered by a firm.
 Both concepts contribute to improving a firm's overall efficiency and
competitiveness in the market, but they require different strategies and
considerations in their implementation.