ABC Co. produces only gadgets, and XYZ Co. produces both gadgets and widgets. If ABC Co. produces gadgets at the same average total cost as XYZ Co., economies of:
A) scope are present in ABC.
B) scale are present in ABC.
C) scale are not present in XYZ.
D) scope are not present in XYZ.

Question

Quizplus · Accepted Answer

Economies of scope refer to cost advantages that a business obtains due to a broader scope of operations, typically by producing multiple products. Since XYZ Co. produces both gadgets and widgets at the same average total cost as ABC Co., which only produces gadgets, XYZ Co. does not benefit from economies of scope.

ABC Co Produces Only Gadgets, and XYZ Co