Question

An airlines realizes that instead of offering free checked in baggage, they could put a charge on checked baggage without the demand for the tickets decreasing. The space saved can be used to carry priority mail packages, with hardly any additional costs. The airlines has realizeda. Economies of scaleb. Diseconomies of scopec. Economies of scoped. Diseconomies of scale

Answer 1

The correct answer is letter "C": Economies of scope.

Step-by-step explanation:

Economies of scope is an economic theory that states an increase in the variety of goods produced results in a decrease in the average cost of production. This is in contrast to Economies of scale which focuses on average cost reduction by an increase in the volume of a single product.

With economies of scope, the focus is on better utilization of overhead and common assets. As these costs are spread over a greater variety of products, their average cost per unit of production declines.