Suppose that your firm is producing two goods X and Y as a r

Suppose that your firm is producing two goods, X and Y, as a result of which economies of scope of 15 percent are enjoyed by the firm. Explain to your friend, who has never heard of economies of scope, what this specific information about your firm means. (4pts) 6.

Solution

Economies of scope is the decrease in cost of production of producing two or more goods together rather than producing them separately.

15% economies of scale means the cost advantage of producing X and Y together is 15%. We can save 15% of expenditure if we produce X and Y together.