Costs are spread across a variety of products, a business that reaps the benefits of economies of scope has lower average costs. Because costs rise with production, a business that reaps the benefits of economies of scale has lower average costs.
An effective internal capital market allocates funds to maximize shareholder wealth when firms have limited funds for investment because external funds are more expensive than internal funds.
A dine-in restaurant with a bakery counter where customers can buy pastries or pies to take home is a typical example of economies of scope.
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