You can rent a machine for 100 to produce either blue or red

You can rent a machine for $100 to produce either blue or red t-shirts. Let be the number of blue t-shirts and q_2 be the number of red t-shirts. The cost function is given by Do economies of scale exist in the production of blue and red t-shirts? Do economies of scope exist in the production of blue and red t-shirts?

Solution

a) Yes, economis of scale exist in the production of blue and red t shirts as there is fixed cost which will be distributed in number of units produced and hence more will be the number of units produced, less will be the cost per unit.

b) Economies of scope exist if people are willing ot pay double price for red t shirts of blue t shirt\'s price.

Economies of scope and economies of scale are two different economic concepts used to help cut a company\'s cost. Economies of scope focuses on the average total cost of production of a variety of good, whereas economies of scale focuses on the cost advantage that arises when there is a higher level of production of one good.

The theory of economies of scope states that the average total cost of a company\'s production decreases when there is an increasing variety of goods produced. Economies of scope give a cost advantage to a company when it produces a complementary variety of products while focusing on its core competencies.

Conversely, economies of scale offer a cost advantage when there is an increased output of a good or service. Economies of scale arise due to the inverse relationship between the average cost per unit and output level. Economies of scale focus on the output level of one product, whereas economies of scope focus on the variety of products offered.