Production costs are reduced when the fixed overhead costs can be spread out over a
large volume of output, adding little to the cost of each individual item. Scheduling also
affects production costs. When a high-volume retailer signs a contract for a large order
from a given manufacturer, that manufacturer can then schedule the work evenly
throughout the year. This avoids the additional costs that go with ups and downs in the
orders that come in unpredictably from the market, leaving the manufacturer’s workforce
idle during some weeks.
The fact that profits are contingent upon efficiency in producing what your customers
want, at a price that customers are willing to pay – and that losses are an ever present
threat if a business fails to provide that – explains much of the economic prosperity found
in economics that operate under free market competition. Profits as a realized end-result
are crucial to the individual business, but it is the Prospect of Profits – and the threat of
losses – that is crucial to the functioning of the economy as a whole.
Efficiency is the difference between having the necessities, comforts and amenities of
high-income countries and suffering the hunger and deprivations too often found in
poorer countries.
Whatever the merits or demerits of various political proposal, what must be kept in mind when evaluating them is that the good fortunes and misfortunes of different sectors of the economy may be closely related as cause and effect - and that preventing bad effects may prevent good effects. It was not accidental that Smith Corona was losing millions of dollars on its typewriters while Dell was making millions on its computers. It was not accidental that Safeway surged to the top of the grocery business while A&P fell from its peak to virtual oblivion. The efficient allocation of scarce resources, which have alternative uses, means that some must lose their ability to use those resources in order that others can gain the ability to use them Typewriters were no longer what the public wanted after they had the option to achieve the same end result and more with computers. Scarcity implies that resources must be taken from some places, in order to go to other places.
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