THE ECONOMICS OF MASS PRODUCTION.
The United States economy changed dramatically in the period following the Civil War. Business itself changed during this time: various ways were tried to increase the size of businesses, including trusts and holding companies. The average standard of living more than doubled between 1870 and 1910 and manufacturing, rather than agriculture, became businesses central feature. A major factor in this increase was the rise of big businesses and the widespread use of mass production. In fact, large businesses can often produce goods and services more cheaply than small businesses. This benefits consumers because lower costs enable firms to reduce the prices they charge, without reducing their profits. Big businesses were able to reduce their cost by using techniques of mass production, which enabled firms to produce a large number of products (Units) at a lower cost per unit. A business firm has got two kinds of costs: fixed costs and variable costs. The major fixed cost is usually capital. It refers to goods that are used to produce other goods and services - for example buildings, machinery and equipments. Buying a machinery will create a cost for the factory but the cost will be the same. On the other hand, variable costs become greater if 1000 units are produced rather than 100. The most common variable costs are labor and raw materials. In order to produce 1000 units a firm will need 10 times more labor and raw materials than it needs to produce 100 units. Beside the large number of units produced and the low cost per unit, other characteristics of the mass production are the large amount of capital and the division of labor. For some products, maximum economies of scale cannot be achieved without large amounts of capital. Automobile production is one example. In order to produce the number of automobiles necessary to bring the price of cars down to affordable levels there’s the necessity of high levels of capital. And it...
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