Economies of scope | Economics homework help


Another way to look at the launch is in terms of economies of scope.   Any company would like a new product that “fits” well with its existing infrastructure, expertise, experience, etc.  The benefit of the “fit” is that the company can produce and sell the product as part of its company portfolio of products at less additional cost than a start-up company could produce and sell the new product.  Think of all the costs a new company would incur to organize the company, staff it, acquire buildings, equipment, etc., learn how to formulate the product, learn how to manufacture it, develop supplier relationships to get inputs for the product, develop marketing, advertising, sales distribution channels, admin departments to oversee the company, legal, insurance, accounting, etc.  Now think about how gels could piggyback on HPC’s knowledge, expertise, experience, and infrastructure.  The more HPC’s existing resources can be used to produce and sell gels without requiring additional resources, the more economies of scope there are in adding gels to the product line. 

Starting with the definition of economies of scope, describe the economies of scope that HPC should be able to achieve with gels and bars.  How could you quantify the dollar benefits HPC could achieve through economies of scope? 

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