Monday, October 28, 2013

economics of scale

ECONOMICS OF SCALE

We all know about economics of scale. Sales are super-sized, and even though each unit makes little profit the overall economic reward is huge. Economics of scale are where Wal-Mart sells at retail price cheaper than a Mom And Pop store owner can buy at jobber price. Economics of scale are why you can buy gasoline at $3.25 a gallon when oil is $50 a barrel, and a mere $3.75 when it doubles to $100 a barrel. Economics of scale are when you pay $8 for a memory stick, yet I can buy them for $2 each with my company name printed on them if I get 25 at a time. I could sell it to you for $6, after shipping, and still make a 100% profit ( I’m actually thinking of doing this to sell my books. Even if you care less about my writing you still get a thumb drive cheaper than elsewhere ). Economics of scale are why a bag of white flour is cheaper than whole wheat. Think about it. You remove the wheat kernel bran, costing extra energy for processing plus machinery, and end up with less product ( call it 20% as a guess for ease of computation ). By all rights, whole wheat should be $2 like white is, rather than $2.50. It took an extra pound of wheat to produce the bag of white flour ( yes, I know the bran ends up in Raison Bran cereal at quite a high mark-up, or as pig food. I’m trying to just compare apples to apples here ). Your material costs are a fifth more, added to the extra machinery and fuel. But because of economics of scale, because almost nobody buys retail whole wheat-at least not compared to white, you make more money even with higher per unit costs.

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As consumers, we are directly benefiting from this basic tenet of the Industrial Age. But let’s ask ourselves what happens to economics of scale in a declining resource base. Economics of scale started with and grew with cheap energy. Almost every process of life has converted to this. Economics, government, agriculture, military. Everyone doing everything is operating under economics of scale to win at the game ( except each individual consumer. They win on each individual sale but lose overall as the cumulative total takes all their profit. Since they can’t produce, only consume, they do end up as net losers ). But economics of scale operates under one very ironclad rule you can’t bend- unlimited resources. How can you buy more and more to get cheaper and cheaper when the basic feedstock of those items isn’t available? Look at newspapers. They are losing customers and hence they can no longer purchase using economics of scale. They consolidate to own more cities papers. They raise prices. They don’t publish seven days a week. They cut costs by buying news from wire services rather than boots on the ground reporters. Yet they still go out of business. If the problem had been lack of trees for the paper rather than lack of customers we would be seeing the same thing. Once you lost economics of scale you can’t compete in today’s economy.

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Now scale this up to include everyone and everything because oil and ore are quickly running out and being substituted with inferior substitutes. All your food goes up, all your gasoline. Just from losing lack of scale. Inflation is an extra cost, as is taxes inevitably rising due to losing economics of scale ( rising unemployment, rising home foreclosures equal less taxpayers ). Taxpayers also were on a economics of scale ( 90% paying 3% generate more revenue than 10% paying 20% ). Just another thorn in our side. Enjoy.

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9 comments:

  1. If a loyal minion buys you a new battery,will you finish the book? How much does a new battery cost?

    -loyal minion

    ReplyDelete
    Replies
    1. I biked home Friday with a new battery. Wrote some on the new chapter already ( one third done ). A marine batt at Wally isn't bad. $59 for 625 cold amp. None have lasted me less than two years.

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  2. Economies of scale

    ReplyDelete
    Replies
    1. oops. I do believe you are right. Oh, well. Maybie my version will catch on.

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  3. Put me down for one of them there thumb drive thingys, or 10,000 of em, whichever is cheaper.

    ReplyDelete
  4. Yes, I'd buy a thumb drive with your works also. And then you would have addresses of your minions. Figure your shipping costs. I imagine you would have to buy those bubble wrap envelopes for mailing.

    Your humble minion.

    ReplyDelete
    Replies
    1. I 've never kept addresses. Bad juju. I do have to price bubble envelopes and postage before I decide ( plus price competitors thuimb drive costs ).

      Delete
  5. Nice one.

    Here's a k-book hint: Amazon has the breakers vol. 1-3 on sale for 0.99. This is pretty damn good series of Apocalypse Porn - think The Stand+Independence Day. The downside is that the author sometimes seems to be more interested, initially, in character development( In the case of Walt this works) But when he gets going - Shit Hits The Fan -- Big Time. My thoughts are: 1 and 3 are damn good. 2 is kind of wobbly. I'm reading 4 now And dammit, its wobbly again. Don't bring an optimistic mind to these books - think Sam Peckinpah - The Wild Bunch & etc.

    ReplyDelete
    Replies
    1. It keeps you busy for several days and isn't god awwful bad

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