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 firm is experiencing both economies of scale (as average costs fall with increased production levels) and economies of scope (as it is cheaper to produce both goods together than if produced separately).

Suppose That a Firm Produces Both Bottled Water and Carbonated