Question

Fresh Breath Enterprises (FBE) is a well-known manufacturer of mouthwash. Its main facility is a mint-processing plant, which is currently operating at only 60% capacity. FBE is considering the introduction of a line of mint chewing gum that would use the same mint-processing plant as part of its production process. This proposed production scenario is an example of:

Economies of scope

Decreasing returns to scale

Constant returns to scale

Increasing returns to scale

Answer 1

Decreasing returns to scale:

When the output increases by less than the proportion of input change than this change is called Decreasing returns to scale.

Constant returns to scale:

When the output increases by the equal to the proportion of input change than this change is called Constant returns to scale.

Increasing returns to scale:

When the output increases by more than the proportion of input change than this change is called Increasing returns to scale.

Economies of scope:

Economies of scope explains the efficiency is achieved through production of variety of production of goods. It involves the production cost is decreased with the results of producing different goods.

Thus, "Economies of scope" is the correct answer.