Question

Suppose a firm has the ability to produce​ soap, toothpaste, or both. If the firm produces q Subscript Upper S units of soap and no​ toothpaste, then the total cost of production will be ​$33 thousand. If instead the firm produces q Subscript Upper T units of toothpaste and no​ soap, then the total cost of production will be ​$15 thousand.​ However, if the firm produces both q Subscript Upper S units of soap and q Subscript Upper T units of​ toothpaste, then the​ firm's total cost of production will be ​$46 thousand. Does this firm potentially experience economies of​ scope, diseconomies of​ scope, or no economies of​ scope?

Answer 1

Firm is facing diseconomies of​ scope

Degree of diseconomies of scope = 0.04347

Step-by-step explanation:

given data

qS total cost of production = ​$33000

qT total cost of production = ​$15000

qS + qT total cost of production = ​$46000

solution

Firm is facing diseconomies of​ scope because here

Degree of diseconomies of scope will be

Degree of diseconomies of scope =
`(qS + qS -  ( qS + qT ))/(( qS + qT ))` .......................1

put here value we get

Degree of diseconomies of scope =
`(33000 + 15000 -(46000))/((46000))`

Degree of diseconomies of scope = 0.04347