frodeem

frodeem t1_j2coh3s wrote

Economy of scale. Let's say I make and sell bottled tea. I need a factory, machinery, labor, and raw materials. Factory rent, and machinery are both good for 100 million bottles a year. Factory rent is $10,000 a month and buy the machinery for $12,000. These costs are fixed. What that means is I would have to pay that if I make one bottle of tea or a hundred million bottles of tea. Labor and raw materials depend on the number of bottles I make - the more bottles the more tea leaves I buy and the more employees I hire.

Now if I produce only 1 bottle a month I still need to pay the fixed costs and minimum amount for raw materials and labor. So I would price that bottle at $11,000 (factory rent + machine cost per month)+ whatever I paid for labor ($1000), and raw materials ($1,00)+ a little bit of profit($100). So I sell one bottle for $12,200 if I want to stay in business.

If I produce 100,000 bottles the pricing changes. Now my expenses are $11,000 (factory rent + machine cost per month)+ whatever I paid for labor ($25,000), and raw materials ($25,000)+ a little bit of profit. So now my expense per bottle is $0.61. I can add $0.39 as a profit and sell each bottle for $1. My profit would be $39,000.

Hope that explains it.

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frodeem t1_ixt1e2p wrote

I'm Gen X and Cinderella was a band I listened to back in the late 80s and early 90s. They were good but there are so many bands today that have talented musicians who play their own instruments. I am not sure what you are trying to say here.

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