Help me understand basic economics here. According to the supply curve it costs companies more dollars per product to supply larger quantity of products. But with economy of scale isn’t it supposed to be the opposite? The more products a company produces the cheaper should be the production cost of …

Suplly curve shows how many goods producers are wiiliing to sell at certain price. Clearly, at a low price only highly competitive manufacturers with low cost per unit would be able to sell products. And vice versa, when prices are high, the more manufacturers would come to market, which, in effect,…

This may be useful for you: The Limits of Supply and Demand by Frank Shostak

I’ll give a concrete example. Let’s say a bakery sells daily 100 bread loafs for 5$ each bread. The daily production cost of each load of bread is 1$. It follows that the daily revenues of the bakery are 500$, and the profit is 500-100=400$. Now the government sets a price ceiling for a loaf of bre…

Price ceilings did cause a shortage in your example. The baker had to construct another bakery, which takes time. During that time, supply was below demand but the baker was not allowed to increase price to reduce demand. Also, unless bakeries cost $0 to build your profit figures are wrong. There i…

Thank you for the answer, it was very useful. I still have one piece of the puzzle missing. The supply curve is always depicted as upward, that is suppliers would provide larger quantity of goods only with increasing prices. Is that because of the investment needed to expand production? Isn’t this o…

The highlighted statement is inconsistent with human rationality. Given the reduced profitability of baking, the baker will be able to put his money to better use doing almost anything besides baking… perhaps he uses his money to buy bonds or switch trades and go into butchering where he can earn p…

Economy of scale within the context of your baker example, as i understand it, he would have to purchase machinery that would allow for him to reduce the costs of bread per unit, which would increase profit or buy his ingredients at cheaper rate due to buying in bulk. So if he was producing 100 loa…

No, increases in production capacity are semi-permanent. If you hire and train 20 new bakery staff, they remain trained in baking and can continue their duties for years. If you buy a new dough-making machine, your dough-making capacity is permanently increased (until the machine breaks down, of co…

That’s not what it means. You should really read the link I gave above, especially the “Graphs vs Reality” section. As Clayton said, in the real world capital needed isn’t insignificant because you can be doing something better with it instead. Yeah, maybe you can make an extra 1% profit with 50 …

Economy of scale results in an increased profit margin, not just increased profits as a linear function of units produced. Sometimes, it’s said that economy of scale results in reduced profits but this is a confusion of competition which forces producers to operate on lower and lower profit margins…

Supply curve and the economy of scale

Economics Economics Questions

John_James April 18, 2011, 6:06pm 18

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Economics Basics: Demand and Supply### Supply vs. Quantity Supplied

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Supply curve and the economy of scale

Economics Basics: Demand and Supply### Supply vs. Quantity Supplied

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