Economies of scope is best stated as: The more vary your produce (“scope”), the lower the average cost per product. A good example is running hotel and a restaurant. Since many resources can be shared (staff, management, IT infrastructure, parking), the combined firm has a cost advantage over a hotel-only or restaurant-only enterprise.
- When you a produce a product or a service…you need to know what your costs are.…In this video, we'll look into the concept…of the economies of scope.…I will give you a full explanation…with some good examples in a minute,…but right now let's look at the fundamental difference.…Economies of Scale is best stated as…the more you produce, scale,…the lower the average cost per product.…Economies of Scope is best stated as the more variety…you produce, scope, the lower the average…cost per product.…
Tesla has a good example of economies of scope.…Tesla as a car manufacturer not only produces cars…by buying and assembling the relevant parts,…Tesla is also a world market leader in producing batteries,…a key component for electric cars.…In addition, Tesla does not use traditional…dealer structures for selling cars,…but builds its own channel.…At the top of it, Tesla knows that many drivers…don't want electric cars because of range anxiety,…the fear that your battery's empty…while you're driving on the Golden Gate Bridge.…
- What are customers buying? (demand theory)
- What should we produce? (production theory)
- Which costs do I need to worry about now? (cost theory)
- What market am I in? (competition theory)
- What should we charge for it? (pricing theory)
To understand what managerial economics looks like in practice, Stefan explains how Google's auction-based advertising system employs the principles of game theory and how understanding this can help decision makers to outmaneuver their competitors.
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- Using economics to solve business problems
- Understanding price elasticity
- Demand curve shifts
- Economics of scale vs. scope
- Break-even and what-if analysis
- Profit maximization
- Economics in action