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Economies of Scale vs Economies of Scope | Top Differences You Must Know - YouTube
Channel: WallStreetMojo
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hello everyone welcome back to the
channel of WallStreetmojo friends
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today we are going to learn a topic a
tutorial on economics of scale verse
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economics of scope
quite an interesting one well let's
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begin economies of scale and economies
of scope are both concepts of economics
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and they both are very useful to a
business that wants to grow and serves
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its its customer better economies of
scale happens basically all right scale
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over here so that we know we can
bifurcate things scale and scope
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economies of scale basically happens
when a company reaches a point of
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production where the cost of the
production cop is no longer or it's no
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longer increasingly or increases and
other than that it decreases or it
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reduces and it happens only in the bulk
production whereas economies of scope on
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the other hand happens when a company
produces variety of products due to
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producing varieties of products the cost
of production gets reduced so when we
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talk about scale are being applied in a
business for a very long time it's
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applied for very long time well if we
talk about the scope is comparatively
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new approach in business economics and
strategy so in this tutorial we'll go
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through each of this concepts in detail
and we'll do a comparative analysis
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between the same so let's understand
this with the help of infographics and
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get into the nitty-gritty of the same
know the key differences the meaning
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that's the first one it saves the cost
of production right the cost to produce
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any material beyond a certain points
over here on the other hand if we talk
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about the scope it saves the cost of
production if company produces varieties
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of production so if there's a
diversification of the product then it
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saves the cost of production right
meaning is done the second point of
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differentiation is reduces the cost of
one product and reduces the cost of
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multiple product because there is
diversified product over here then there
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in then and then only the cost can
reduce as the name itself suggests this
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is scaling and this is a school third
what this is all about
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if we talk about the skin it is
producing one type of product in bulk
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but in this case producing multiple
products under a same operation so there
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are multiple products but operating
under a one single window now fourth
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point of differentiation is reduction
due to bulk production what is a driver
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that is helping to reduce the cost of
production it is the bulk production and
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over here is the varieties of production
varieties of production means multiple
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products which have been used so that
reduces the cost of production these are
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the two drivers right now the fifth
point it it is relatively the old
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concept and this is the new concept and
this is used basically everywhere and it
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is being recently used by the businesses
so this is a basically the new concept
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that has been introduced in the market
now what is the strategy behind this
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particular thing standardization of the
product and over here diversification
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just what I told you at the very start
starting stage of the infographic
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so here there is a standardization and
over here there's a diversification that
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means expanding the horizons in terms of
products right now what is exactly the
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importance or the use of this tool so if
we talk about the scope a huge amount of
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resources since the production happens
in bulk a huge amount of resources since
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the production happens in bulk and over
here in case of this is a scale
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and this is scope so a lot of less
resources because under one operation
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that is under one window multiple
products up in produced now let's take
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an example on the same production of one
type of smartphones is a in huge
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quantities but when we talk about over
here in terms of scope production of
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multiple food items by using the same
resources with the help of milk you are
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producing cheese mozarella
and so on and so forth so this is
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basically the example for both the
scenarios now let's understand what are
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the key differences that goes in when we
talk about scope and scale okay let's
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begin on the same
economies of scale is all about
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basically increasing you can say
increasing the units of production okay
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this is what we are talking over here
and economies of scope is basically we
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are all talking about over here of
increasing that is addition or
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increasing in the varieties this is very
important point increase in the
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varieties second point of important
different differentiation economies of
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scale help a company look at the average
average basically the average cost per
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unit and then gradually increases the
quantity till the average cost of per
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unit it reaches its minimum economies of
scope are all about utilizing the infra
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infrastructure it's all about using the
infra infrastructure and and basically
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to reduce the average cost per unit
the third point of different
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differentiation economies of scale
depends more on the production capacity
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so this is relevant in production
capacity of one product when we talk
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about the scope economies of scope
depends more on the infrastructure of
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the company to produce multiple products
under one head fourth point of
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differentiation this is some of the
important points economies of scale is
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relatively basically the old concept
that we have just learned and economies
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of scope is basically a new concept you
can see over here what we learned as
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standardization and we hear as
diversification so you can tell me
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horizon of scope is more over here or in
scope Rezanov scope is more horizon or
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for diversification or horizon of
expansion is more in terms of scope
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rather than in terms of scale so based
on this we can make some final
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conclusion we can sum this up what we
discussed as meaning what it reduces to
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I mean what reduces the cost then what
it is all about then we discussed what
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reduction what is the reason behind
which this is getting reduced the cost
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of production because of the bulk or the
varieties in production and so on and so
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forth so let me recapitulate the whole
thing make a finding conclusion on this
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as a business understanding and using
both of this can be beneficial but it it
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is better that a business use these two
things prudently very important now you
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need to know where to use economies of
scale and where to use economies of
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scope so if you are already selling
let's say 5 products under a head of
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your company trying to achieve economies
of scale is an a sagacious decision
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instead in that case if you go for
economies of scope it would be much more
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wiser
at the same time if you know that as a
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company your core strength lies in
producing just let's say one product
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okay and going for economies of scope to
reduce the average cost per unit isn't a
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prudent one so you need to know when and
you need to know what thank you everyone
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