In making a decision to diversify, managers should use value-creating reasons or face the risk that their firms will be acquired and they could lose their jobs. Which of the following is a value-creating reason to diversify?

a. Economies of scope

b. Low performance

c. Reduced managerial risk

d. Desire for increased compensation

The answer is A. Economies of scope

Explanation:

Economies of scope describe situations when producing two or more goods or services together results in a lower cost than producing them separately.

An economy of scope means that the production of one good reduces the cost of producing another related good.

Economies of scope also describe situations in which the long run average and marginal cost of a company, organization, or economy decreases, due to the production of some complementary goods and services.