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Economies of Scale/Scope

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Explore how a firm determines the optimal scale of a plant for a given rate of output and why this determination relates to longer-run strategies versus current operations. Also, discuss the differences between economies of scale and economies of scope and how firms can benefit from each.

Then, provide a specific company example of economics of scale or economics of scope and how it affects production and cost or how technology affects the inputs and costs. Conduct research and use specific examples.

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Solution Summary

This posting gives you a step-by-step explanation of economies of scale and economies of scope. The response also contains the sources used.

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The optimal scale of output refers to the firm experiencing economies of scale because of increase in size. The unit of cost of production by the firm tends to decrease as they expand. There are many reasons for this including lower costs because of volume purchases, lower borrowing costs, and incentives for larger operations. The optimal scale is determined by the manager when he fixes the output. The output is ...

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