Which of the following economies of scope do not have the potential for generating positive returns for a firm's equity holders since the economies of scope can be realized by outside equity holders at a low cost by investing in a diversified portfolio of stock?
A) shared activities
B) diversification to maximize the size of a firm
C) internal capital allocation
D) exploiting market power

Question

Quizplus · Accepted Answer

Diversification to maximize the size of a firm is a strategy that can be easily replicated by outside equity holders through investing in a diversified portfolio of stock. Therefore, it does not have the potential for generating positive returns for a firm's equity holders. The other economies of scope (shared activities, internal capital allocation, and exploiting market power) require the firm's unique capabilities and resources, which cannot be easily replicated by outside investors.

Which of the Following Economies of Scope Do Not Have