3 ms·

Because fewer people are involved, they can generally make the products to a more predictable standard ("quality") and cheaper. Lets say the item the plant mad

Because fewer people are involved, they can generally make the products to a more predictable standard ("quality") and cheaper. Lets say the item the plant made with all those people used to cost $10 for consumers to buy, but the efficiency improvement from the manufacturing plant now means that it costs $5 for consumers to buy. All over the town/country/world, people who used to part with $10 now only part with $5. They now have an additional $5 to spend in their community. The manufacturing plant has enabled many others to have their money go further - how is that a bad thing?

lifeisstillgood 11y ago
Which fool drops their prices like that :-) Consumers should now pay $9.99 and we keep $4.99 profit in our community of billionaires :-)
- rogerbinns 11y ago
  > Which fool drops their prices like that :-) Anyone who has competition, be they direct or reasonable alternatives.
TeMPOraL 11y ago
That's not how it works :). If the productivity doubles, the product will still cost $10, but the company will happily pocket that $5 improvement - and no, they won't raise the salaries of their workers, because why would they? There's zero reason to. Also note that "efficiency improvement from the manufacturing plant" usually means a) automating a part of the production process, and b) firing the workers who are no longer needed. So now you have a product that's still $10, but some of the people in the community don't have a job anymore, so they can't buy it. Of course, then a competitor shows up, driving the product price down to $4.50. The original company has to adjust, so it fires some more people and cuts down the paychecks for the rest. The end result is: the product is cheaper, but the community is poorer, and some of its members don't have a job anymore. But hey, isn't this the whole point of optimizing business through competition? Isn't the goal to make more with less resources and less people?
- rogerbinns 11y ago
  That is exactly how it works, unless there is a monopoly and no alternatives. You've forgotten all the people and communities benefiting from the lower prices, who (normally) vastly outnumber the factory workers. And the same factory workers benefit from the lower pricing in what they buy made by others too. Yes the goal really is to improve productivity. If you want to do as much as possible locally with many people, then try subsistence farming. It has only been ~200 years since ~98% of people in the US worked in agriculture - now down to ~2%. Yet vastly more food is made and it is cheaper. Trade and specialisation/productivity are what has driven prosperity and quality of life. It is very tempting to see all this as a zero sum game (ie the level stays the same and gains match losses). But in reality it is a rising tide lifting all boats (ie gains outpace losses). There are temporary blips while change happens. To an individual life, that can be serious, and a humane caring society will address it through various means of support and opportunity. By far the stupidest way of providing support is requiring commercial enterprises to provide jobs and work to do that they don't require, increases their prices and helps their competitors, with no societal benefit. Note that this approach has been tried numerous times - it results in a stagnant economy, slow or negative prosperity, and doesn't really help.
YeGoblynQueenne 11y ago
Hang on, why would you drop your prices when your margin just increased? Why let "the community" keep their extra $5 and not pocket it yourself instead? Financially speaking: what's the incentive?
- rogerbinns 11y ago
  Unless you are a monopoly, one of your competitors will drop their prices since they too will be looking for improvements. As Bezos says "your margin is my opportunity".
- repsilat 11y ago
  Say you have an idea of what the demand curve looks like. For the sake of argument, let it be (100-p), so 100 people would want it for free, and none would want it at $100. If your marginal cost is $50, to maximise profit you'd set the price equal to $75 and make $625 net. If your marginal cost is $40, you'd set the price at $70 to maximise profit and make $900 net.

lifeisstillgood 11y ago

Which fool drops their prices like that :-) Consumers should now pay $9.99 and we keep $4.99 profit in our community of billionaires :-)

rogerbinns 11y ago
> Which fool drops their prices like that :-) Anyone who has competition, be they direct or reasonable alternatives.

TeMPOraL 11y ago

That's not how it works :). If the productivity doubles, the product will still cost $10, but the company will happily pocket that $5 improvement - and no, they won't raise the salaries of their workers, because why would they? There's zero reason to. Also note that "efficiency improvement from the manufacturing plant" usually means a) automating a part of the production process, and b) firing the workers who are no longer needed. So now you have a product that's still $10, but some of the people in the community don't have a job anymore, so they can't buy it. Of course, then a competitor shows up, driving the product price down to $4.50. The original company has to adjust, so it fires some more people and cuts down the paychecks for the rest. The end result is: the product is cheaper, but the community is poorer, and some of its members don't have a job anymore. But hey, isn't this the whole point of optimizing business through competition? Isn't the goal to make more with less resources and less people?

rogerbinns 11y ago
That is exactly how it works, unless there is a monopoly and no alternatives. You've forgotten all the people and communities benefiting from the lower prices, who (normally) vastly outnumber the factory workers. And the same factory workers benefit from the lower pricing in what they buy made by others too. Yes the goal really is to improve productivity. If you want to do as much as possible locally with many people, then try subsistence farming. It has only been ~200 years since ~98% of people in the US worked in agriculture - now down to ~2%. Yet vastly more food is made and it is cheaper. Trade and specialisation/productivity are what has driven prosperity and quality of life. It is very tempting to see all this as a zero sum game (ie the level stays the same and gains match losses). But in reality it is a rising tide lifting all boats (ie gains outpace losses). There are temporary blips while change happens. To an individual life, that can be serious, and a humane caring society will address it through various means of support and opportunity. By far the stupidest way of providing support is requiring commercial enterprises to provide jobs and work to do that they don't require, increases their prices and helps their competitors, with no societal benefit. Note that this approach has been tried numerous times - it results in a stagnant economy, slow or negative prosperity, and doesn't really help.

YeGoblynQueenne 11y ago

Hang on, why would you drop your prices when your margin just increased? Why let "the community" keep their extra $5 and not pocket it yourself instead? Financially speaking: what's the incentive?

rogerbinns 11y ago
Unless you are a monopoly, one of your competitors will drop their prices since they too will be looking for improvements. As Bezos says "your margin is my opportunity".
repsilat 11y ago
Say you have an idea of what the demand curve looks like. For the sake of argument, let it be (100-p), so 100 people would want it for free, and none would want it at $100. If your marginal cost is $50, to maximise profit you'd set the price equal to $75 and make $625 net. If your marginal cost is $40, you'd set the price at $70 to maximise profit and make $900 net.