Which of the following best describes economies of scope?

• A. A situation where producing multiple products together is less costly than producing them separately.
• B. A situation where increasing the scale of production lowers the average cost per unit.
• C. A market structure in which a single firm controls the entire supply of a product.
• D. A condition where the marginal cost of production is constant regardless of output level.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the concept of economies of scope. Economies of scope occur when producing multiple products together reduces the total cost compared to producing each product separately.
2. Step 2: Compare economies of scope with economies of scale. Economies of scale refer to cost advantages from increasing the scale of production of a single product, which lowers average cost per unit.
3. Step 3: Recognize that a market structure where a single firm controls the entire supply is called a monopoly, which is unrelated to economies of scope.
4. Step 4: Understand that constant marginal cost means the cost of producing one more unit does not change with output, which is a different concept from economies of scope.
5. Step 5: Conclude that the best description of economies of scope is the situation where producing multiple products together is less costly than producing them separately.