Economies of scope focuses on the average total cost of production of a variety of goods,

whereas economies of scale focuses on the cost advantage that arises when there is a higher
level of production of one good.
Economies of Scale Producing more to lower unit cost

At the simplest level, economies of scope focuses on the average total cost of production. The underlying
theory is that accumulated volume in production and sales will result in lower cost price per unit. This is a
result of the so-called experience-curve effects and increased efficiency in areas such as production, marketing
and so on. Economies of scope is often mentioned alongside a firms global expansion. The reason: Building a
global presence automatically expands a firms scale of operations. This gives the firm larger production
capacity. The larger scale can indeed be converted into economies of scale, which will create competitive
advantage.

There are several benefits of economies of scale:

Reduced operating costs per unit

Fixed costs spread over larger volume
Pooling of global purchasing to concentrate purchasing power over suppliers, leading to volume
discounts and lower transaction costs
Opportunity to build centres of excellence for development of specific technologies or products

Economies of Scope Wider range of business activities to

reuse resources

Before turning to the difference between economies of scale and economies of scope, we must
understand what economies of scope means. While economies of scale refers to a larger production
volume to drive down unit cost, economies of scope means to engage in a wider range of business
activities to reuse resources. Despite the difference between economies of scale and economies of
scope, the outcome is the same: efficiencies and resulting cost savings. Synergy effects and global
scope can occur, for instance, when the firm is serving several international markets, and reuses the
 same resources everywhere. The challenge in capturing economies of scope lies in being responsive to
the tension between two conflicting needs: the need for centralization of marketing mix elements, and
the need for local autonomy in the actual delivery of products and services.
To illustrate economies of scope, lets look at an example. Most OEMs in the automotive industry use
similar engines and gearboxes across their entire product range so that the same engines and
gearboxes can go into different models of cars. By resuing resources (in this case the engines and
gearboxes) across several products, enormous cost savings are achieved.

Normal vs Inferior Goods

In economics, a product that is used to satisfy needs and desires are called goods. Goods are
tangible properties, unlike services, which are known as intangible properties. A tangible
property, in law, is anything that can be touched. It also covers real property and personal
property. They are classified as physical in nature. However, in some legal systems, intangible
properties that have anything associated with physical items rather than physical properties hold
greater significance. An example would be a promissory note which holds the legal rights of
which the paper confers and, therefore, the physical paper is not the real significant property of
it.
Characteristics of a good are that it is an object that can increase the utility of a consumer or a
product directly or indirectly. They are modeled as to having to diminish in the marginal utility.
Marginal utility, in economics, is the measurement of additional satisfaction or benefit that a
consumer can obtain from buying additional units of commodity or from service. The concept of
marginal utility is that a benefit obtained from an additional unit of a product to a consumer is
inversely related to the number of products owned by the consumer.

There are also different types of goods. Examples of these types are normal goods, inferior
goods, and luxury goods. The last of the examples, the luxury goods, is a type of product that
increases in demand as the income rises. These goods have a high income elasticity of demand.
This is because of the fact that if the consumer is wealthier, they will buy more of the luxury
goods. This can also mean that the consumer will buy less of it if he or she experiences decline in
the level of income. Luxury goods are not considered as essential to a consumer, and an example
of this type is a luxury car.

Normal goods is a type of product that increases in demand as the income increases, but it also
decreases when the level of the consumers income decreases. The price for this good remains
constant. An example would be the amount of consuming food. A consumer with a higher
income would consume more steak while having a lower level of income would lead the
consumer into limiting the amount of steaks that he or she bought. This type of good has a
positive association between two factors, the quantity demanded and the income.

Inferior goods are products that decrease in terms of demand when the income of the consumer is
increased; this is in contrast with normal goods. An example would be a consumer buying

Cup O Noodles when he or she has a low income. The consumer settles with buying more of
these noodles. However, when the consumer receives an increase in terms of income, the
consumer will switch into buying more expensive and more wholesome food that he or she can
afford.
Summary:

1.Goods are products that are used to satisfy the needs of a consumer. Unlike services, they have
tangible properties.
2.Different types of goods exist. Examples of these are: luxury goods, inferior goods, and normal
goods.
3.The difference between normal goods and inferior goods are their concepts. Normal goods
increase in demand as the income of the consumer increases while inferior goods decrease in
demand as the income increases.

Discount Pricing Strategy

What is 'Discounting'
Discounting is the process of determining the present value of a payment or a stream of
payments that is to be received in the future. Given the time value of money, a dollar is
worth more today than it would be worth tomorrow. Discounting is the primary factor
used in pricing a stream of tomorrow's cash flows.

BREAKING DOWN 'Discounting'

For example, the coupon payments found in a regular bond are discounted by a certain interest
rate and added together with the discounted par value to determine the bond's current value.

From a business perspective, an asset has no value unless it can produce cash flows in
the future. Stocks pay dividends. Bonds pay interest, and projects provide investors with
incremental future cash flows. The value of those future cash flows in today's terms is
calculated by applying a discount factor to future cash flows.

Time Value of Money and Discounting

When a car is on sale for 10% off, it represents a discount to the price of the car. The
same concept of discounting is used to value and price financial assets. For example,
the discounted, or present value, is the value of the bond today. The future value is the
value of the bond at some time in the future. The difference in value between the future
and the present is created by discounting the future back to the present using a
discount factor, which is a function of time and interest rates.

For example, a bond can have a par value of $1,000 and be priced at a 20% discount,
which is $800. In other words, the investor can purchase the bond today for a discount
and receive the full face value of the bond at maturity. The difference is the investor's
return. A larger discount results in a greater return, which is a function of risk.

Discounting and Risk

In general, a higher the discount means that there is a greater the level of risk
associated with an investment and its future cash flows. For example, the cash flows of
company earnings are discounted back at the cost of capital in the discounted cash
flows model. In other words, future cash flows are discounted back at a rate equal to the
cost of obtaining the funds required to finance the cash flows. A higher interest rate paid
on debt also equates with a higher level of risk, which generates a higher discount and
lowers the present value of the bond. Indeed, junk bonds are sold at a deep discount.
Likewise, a higher the level of risk associated with a particular stock, represented as
beta in the capital asset pricing model, means a higher discount, which lowers the
present value of the stock.

What is 'Price Discrimination'

Price discrimination is a pricing strategy that charges customers different prices for the
same product or service. In pure price discrimination, the seller charges each customer
the maximum price that he is willing to pay. In more common forms of price
discrimination, the seller places customers in groups based on certain attributes and
charges each group a different price.

BREAKING DOWN 'Price Discrimination'

Price discrimination is most valuable when the profit from separating the markets is greater than
profit from keeping the markets combined. This depends on the relative elasticities of demand in
the sub-markets. Consumers in the relatively inelastic sub-market are charged a higher price,
whereas those in the relatively elastic sub-market are charged a lower price.

Conditions for Price Discrimination

The company identifies different market segments, such as domestic and industrial
users, with different price elasticities. Markets must be kept separate by time, physical
distance and nature of use. For example, Microsoft Office Schools edition is available
for a lower price to educational institutions than to other users. The markets cannot
overlap so that consumers who purchase at a lower price in the elastic sub-market
could resell at a higher price in the inelastic sub-market. The company must also have
some type of monopoly power to make price discrimination more effective.

Types of Price Discrimination

First-degree discrimination, or perfect price discrimination, occurs when a company

charges the maximum possible price for each unit consumed. Because prices vary
among units, the firm captures all available consumer surplus for itself. This type of
discrimination is rarely practiced.

Second-degree price discrimination occurs when a company charges a different price

for different quantities consumed, such as quantity discounts on bulk purchases.

Third-degree price discrimination occurs when a company charges a different price to

different consumer groups. For example, moviegoers may be subdivided into seniors,
adults and children, each paying a different price when seeing the same movie at one
theater. This type of discrimination is the most common.

Price Discrimination in Airlines

Consumers buying airline tickets several months in advance typically pay less than
consumers purchasing at the last minute. When demand for a particular flight is high,
airlines raise the prices of available tickets. In contrast, when tickets for a flight are not
selling well, the airline reduces the cost of available tickets. Because many passengers
prefer flying home late on Sunday, those flights tend to be more expensive than flights
leaving early on Sunday morning. Airline passengers typically pay more for additional
leg room as well.

NIFTY
The NIFTY 50 index is National Stock Exchange of India's benchmark stock market index for
Indian equity market, launched on 21st April 1996. Nifty is owned and managed by India Index
Services and Products (IISL), which is a wholly owned subsidiary of the NSE Strategic
Investment Corporation Limited. IISL had a marketing and licensing agreement with Standard &
Poor's for co-branding equity indices until 2013.

What is a mid-cap stock?

Mid caps are typically defined as companies with market caps that are between $2
billion and $10 billion. Mid-cap stocks tend to be riskier than large-cap stocks but less
risky than small-cap stocks. Mid-cap stocks, however, tend to offer more growth
potential than large-cap stocks.

What are large-cap stocks?

Large caps are typically defined as companies with market caps that are $10 billion or
above. Included within large caps are mega caps, which are typically defined as
companies with markets caps of $200 billion or above. These tend to be companies that
are very stable and dominate their industry. Wal-Mart, the worlds largest retailer, is an
example of a mega-cap stock. Large-cap and mega-cap stocks tend to hold up better in
recessions, but they also tend to underperform small-cap stocks when the economy
emerges from a recession. Large-cap and mega-cap stocks tend to be less volatile than
mid-cap and small-cap stocks and are therefore considered less risky.

What is a natural monopoly?

A natural monopoly is a type of monopoly that exists as a result of the

high fixed or start-up costs of operating a business in a particular industry.
Because it is economically sensible to have certain natural monopolies,
governments often regulate those in operation, ensuring that consumers get
a fair deal. Natural markets exist primarily in smaller markets. As the
markets grow, it may be possible that two or more firms can survive in that
market.

What is a government created monopoly?

Shares

A Government-created monopoly is a forced form of market domination

whereby a national, regional or
local administration, agency or corporation is permitted to be the
only provider of a certain product since any competition with their product
is legally prohibited. A government monopoly is generally created and run
by a government, rather than by a private business. Cable companies
such as Comcast and all cable companies are an example of a government-
created monopoly. While this can help to control costs and over-pricing, it
is not in the spirit of a competitive market. I lived in certain areas where I
wanted one cable company and could not use their services because they
were not available in my town. My only other option was extremely
expensive satellite.