A firm that produces mouthwash branches out into producing toothpaste.If this expansion reduces its average cost of production,which of the following can be concluded about this firm?

Question

Quizplus · Accepted Answer

The firm is experiencing economies of scope, which means that by producing another related product (toothpaste), it is able to reduce its average cost of production due to shared resources and synergies. Horizontal integration occurs when a firm expands by merging with or acquiring another firm in the same industry, which is not the case here. Vertical integration involves expanding into different stages of the production process and is also not applicable in this scenario. The option of not incurring any transaction cost is not relevant to the question.

A Firm That Produces Mouthwash Branches Out into Producing Toothpaste