Question

For each of the following production cost tables, indicate whether there are fyes or no 1. Single product economies of scale for service 2. Single product economies of scale for service 3. Economies of scope 4. Multiproduct economies of scale Total costs(000) Number of Services (100) 100 125 130 155 1418 65 1201 Number of Service (100) SA 220 250 255 280 Table 2 Total costs [000) Number of Service Xs (100) s 85 130 220 159 Number of Service Ys (100) 16) 204 226 222 244 267 289 De la cele 186 208 190231 307 330 Table . Total costs 000) Number of Service Xs (100s) 130 175 157 122 Number of Service Ys (100) 154 28 ENER 269 Total costs [000) Number of Service X (100) 818- 20 120 100 52 1 Number of Service Ys (100) Sellel 1731 199 225 252

Answer 1

Let us first define what these terms are

Economies of scale is when average cost per unit of production comes down as total production increases.

Economies of scope is when the total cost, when the two products are produced together, is less than what it would've been if the two products were manufactured separately.

Now, for single product economies of scale, we need to see if average unit cost is going down when the production for the other product is 0. So, in table one, the unit cost of X is indeed going down when Y is 0. The unit cost drops from 40000/100=400 to 70000/200=350 and so on. So there is single product economies of scale for X in table 1. This we can check for X and Y for each table.

For economies of scope, take any production where both are being produced. In table 1, lets take when we produce 1000 of both X and Y. The total cost is 65000. If we were producing them separately, our total cost would've been 40000+35000=75000. Since this is greater than when producing them together, this means there are economies of scope in Table 1. This we can calculate for each table in the same manner.

Finally, for multiproduct economies of scale, we will have to compare total unit cost change as we increase production. In table 1, when we produce 1000 of both X and Y, total cost is 65000. So unit cost is 65000/2000=32.5. When we produce 2000 of both, the total cost is 120000. Unit cost is 120000/4000=30. As the costs are decreasing with increase in production, there are multiproduct economies of scale. We can check the same way for all tables.

The final filled table is given below.

	Table 1	Table 2	Table 3	Table 4
Single product economies of scale (X)	Y	N	N	Y
Single product economies of scale (Y)	Y	Y	N	Y
Economies of scope	Y	N	Y	N
Multiproduct economies of scale	Y	Y	Y	Y