Posted by: Dirk | September 11, 2007

Economies of scale vs economies of scope

Today I took a quick look at Baumol/Panzar/Willig’s Contestable Markets And the Theory of Industry Structure (1982). There is a good definition of economies of scale and scope:

Scale economies are often defined to be present when a k-fold proportionate increase in every input quantity yields a k’-fold increase in output, where k’>k>1. (p.21)

In addition to economies deriving from the size or scale of a firm’s operations (…), there is also the possibility that cost savings may result from simultaneous production of several different outputs in a single enterprise, as contrasted with their production in isolation, each by its own specialized firms. (p.71)

Next up, localization and urbanization economies.

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