Final answer:
The savings derived from producing different products jointly in the same production unit is called economies of scope. This is different from economies of scale, where producing more of a single product lowers the average cost. Economies of scope involve cost savings from producing a range of products using shared resources.
Step-by-step explanation:
The savings derived from producing different products jointly or simultaneously in the same production unit is referred to as economies of scope. This contrasts with economies of scale, where the long-run average cost of producing output decreases as total output increases. Economies of scope allow a firm to leverage shared inputs or production capabilities to produce multiple products at a lower average cost per unit. The concept is related to the notion that a larger factory can produce at a lower average cost than a smaller one, assuming the larger factory is able to efficiently diversify its production lines.
A firm experiences economies of scale when it reduces costs through increased production levels, while economies of scope are realized when a firm reduces costs by producing a variety of goods, sharing resources across the products. For example, a dairy company that produces cheese, yogurt, and ice cream can share many fixed inputs like machinery and distribution channels, leading to savings and potentially greater economic profit, which is total revenues minus total costs (explicit plus implicit costs). In contrast, diseconomies of scale occur when the long-run average cost of producing output increases as total output increases.