Economies of scale relate to improved efficiencies and the reduced costs to produce a single unit by increasing the volume of production. Those economies are the result of spreading fixed costs over a greater number of units produced and thus lowering the cost per unit. An example might be a pizzeria that must invest in the cost of pizza oven. Every additional pizza that is produced is cheaper to produce than the one before because you are dividing the cost of the oven over more pizzas. Enterprises that operate on a large scale also enjoy improved efficiencies because they can assign resources more effectively. An enterprise that employs a large number of people can assign duties that allow for individuals to become more specialized in their tasks. The result is productivity that grows at a rate that exceeds growth in the number of employees.

Economies of scope are similar to economies of scale, but the improved efficiencies are the result of diversifying the line of products sold by an enterprise. The same pizzeria in the above example may enjoy economies of scope by finding new product lines where the pizza oven is used to bake cinnamon-and-sugar-covered bread sticks that are made from pizza dough. By extending the use of the inputs to multiple products, you are reducing the overall cost per unit of each product line.