At the beginning of 2001, Peach Computers competed exclusively in the computer industry and generated approximately 96% of its revenue from the sales of computers and computer-related software and approximately 4% of its revenues were generated from sales of other peripherals. Further, of these revenues, 60% was from sales in the U.S., 30% was from sales in Europe, 7% was from sales in Asia and 3% was from other areas. In October 2001, Peach entered the personal electronics industry by introducing a new MP3 player known as the PeachPit. In developing and selling the PeachPit, Peach Computers was able to use many of the same R&D facilities, suppliers, production facilities, and distribution and sales outlets as the computers and software Peach Computers traditionally sold. By 2003, the PeachPit MP3 Player, accessories for the unit, and sales of songs on Peach Computers' NectarTunes website accounted for 35% of Peach Computers' revenues.
-If one of the reasons that Peach Computers entered into the electronics industry was to offset weakness in the computer industry because when the computer industry was weak, the electronics industry was strong, and vice versa, Peach Computers would be pursuing which economy of scope?
A) core competencies
B) multipoint competition
C) tax advantages
D) risk reduction

Question

Quizplus · Accepted Answer

Economy of scope refers to the cost savings a company can achieve by producing multiple products or services using the same resources. In this case, Peach Computers entered into the personal electronics industry to reduce risk by diversifying its revenue streams. By offsetting weakness in the computer industry with strong demand for electronics, Peach Computers is able to spread the risk across multiple industries, which is known as risk reduction or risk diversification.

At the Beginning of 2001, Peach Computers Competed Exclusively in the Computer