Framjam Sports Equipment produces basketballs at its factory in Kentucky and soccer balls at its factory in Illinois.At its current annual rate of production,the cost of producing basketballs is $70,000 and the cost of producing soccer balls is $45,000.If the firm consolidates production at a single location,the annual cost of production will be $100,000.What is the degree of economies of scope in this case?

Question

Quizplus · Accepted Answer

The degree of economies of scope can be calculated as follows:

Degree of economies of scope = (Cost of producing both products separately - Cost of producing both products together) / Cost of producing both products separately

= [(70,000 + 45,000) - 100,000] / (70,000 + 45,000)

= 15,000 / 115,000

= 0.13 or 13%

Therefore, the degree of economies of scope is 0.15.

The best choice is C.

Framjam Sports Equipment Produces Basketballs at Its Factory in Kentucky