1. Economics of Mass Production
Is More Better?
Economics of Mass Production

2. What is Mass Production?
Characteristics:
Large Number of Units Produced
Low Cost Per Unit
Large Amount of Capital
Factories
Machines
Coordinated Work Force
Assembly Line Fashion
Division of Labor
Visual 23.1

3. What Costs are Associated with Mass Production?
Fixed Costs
Do not change when the number of units produced increases or decreases
Capital
Utilities
Property Taxes
Variable Costs
Costs that change when the number of units produced increases or decreases
Labor
Raw materials
Fixed Costs + Variable Costs = Total Cost Total Cost/Units Produced = Cost Per Unit
Visual 23.2

4. Figuring the Costs Weekly output: _______ cans
Total fixed cost: $10,000 a week
Variable cost per unit: 25 cents per can
Total variable cost: _________
Total cost: __________
Divided by _________ cans
Cost per unit: ___________
1st Example:
Output 100 cans
Total var cost $25
Total cost $10025
Divide by 100
Cost per unit: $1025
How many cans could you expect to sell at that price?
Example 2: Increase production
Output 1000 cans
Total var cost $250
Total cost $10250
Divide by 1000
Cost per unit: $10.25
Will you sell many cans at that price?
Example 3: Increase production
Output cans
Total var cost $6250
Total cost $16250
Divide by 25000
Cost per unit: $0.65
Why does the cost per unit keep falling as the number of units produced increases?
(Fixed costs spread over more units). This is referred to as economies of scale.
Visual 23.3

5. What is an Economy of Scale?
The situation where the average total cost of making a product declines as production increases in the long run.
The more units are produced, the cheaper the units are to produce

6. Andrew Carnegie Activity 23.1 Prepare for Quiz
Quia