What Is the Difference Between Economies of Scale and Economies

question 37

Multiple Choice

What is the difference between economies of scale and economies of scope?

• A)Scale refers to the magnitude or size of the operation, while scope refers to the reach of defined savings within the value chain.
• B)Scale refers to the extent of change, while scope refers to the possibilities of change.
• C)Scale is about dimensions, while scope is about the capacity available for production capabilities.
• D)Scale refers to cost savings that accrue directly from larger-sized operations, while scope stems directly from strategic fit along the value chains of related businesses.
• E)Scale and scope mean the same thing and the only difference is the extent of cost savings accrued from unrelated businesses in each.

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Definitions:

Moral Hazard

The situation in which an entity has the incentive to take undue risks because the cost of those risks will be borne, at least in part, by others.

Firm-Specific Risk

The risk associated with an individual company, which can be reduced through diversification in investment.

Market Risk

The possibility that investors might incur losses because of elements influencing the general performance of the financial markets.

Informationally Efficient

A market condition where all existing information is completely accounted for in stock prices, thereby eliminating the possibility of consistently securing above-average profits.