Why Firms Want to Diversify as Per Their Economic Validity

Topics: Mobile phone, Economics of production, Coca-Cola Pages: 3 (1035 words) Published: February 25, 2013
In this Coursework of Economics of industry I will be concluding why firms want to diversify as per their economic validity. As in this coursework will talk about importance and drawbacks of diversification, economies of scale and economies of scope as it leads to diversification, different ways to diversify.

Diversifying significantly helps in enhancing a firms ability to grow rapidly. Firms diversify for many reasons one the basic is survival example if a company sells heating equipment it will do good business during autumn and winter whereas will have cover up for summer during winter time or can diversify to say sell air conditioner during summer how to survive in the market and by establishing new products and lines will enable the firm to make more sale to existing and new customers .Every firms want to diversify many well known firms sell multiple products such as apple sells computers, mobile phone, music products, etc. Reliance another firm sell clothes, entertainment products, etc. Diversification is possible across products and markets due to economies of scale and economies of scope. Diversification which occurs due to other factors is less successful. When goods and services produced again and again going through same process in long period can be produced much cheaper is known as economies of scale example production of a complex item such as a motor car. The production process involves many different complex stages. Therefore to produce a car you should split up the process and have workers specialise in producing a certain part. e.g. a worker may become highly specialised in the design of a car; another in testing e.t.c. Specialisation requires less training of workers and a more efficient production process another example as universities has different departments economies of scale as common library, student accommodation, sports facilities, dictate common ownership and location, whereas economies of scope refers to that...
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