Suppose that a firm produces both bottled water and carbonated soft drinks.It is cheaper for this firm to produce both goods than it would be if they were produced by two separate firms.Further,as this firm increases its production levels,the average costs of producing both bottled water and carbonated soft drinks fall.This firm experiences:
A) economies of scope and diseconomies of scale.
B) both economies of scope and economies of scale.
C) both diseconomies of scope and diseconomies of scale.
D) diseconomies of scope and economies of scale.

Question

Quizplus · Accepted Answer

The situation described in the question is an example of economies of scope, as producing both bottled water and carbonated soft drinks together is cheaper than producing them separately. Additionally, the fact that the average costs of production decrease as the firm increases its production levels indicates economies of scale. Therefore, the correct choice is B - both economies of scope and economies of scale.

Suppose That a Firm Produces Both Bottled Water and Carbonated