economies of scope

Economies of scope are similar to economies of scale. Economies of scale refers to lower average costs per unit achieved by making more of a single product. Economies of scope refers to lowering average costs per unit by producing two or more products. For example, if a factory starts to make an additional type of product, the fixed overheads per unit will be lower than when it just made one product. It is effectively additional volume of production achieved by having more products rather than more of a single product. This can make diversification attractive of the diversification still shares some sort of resource eg advertising or distribution.