“Economies of scale” I’m sure is basic knowledge for anyone who had/s economics as a subject. In simple term it means as business expands, the cost of production per unit comes down. It is proven and universally accpeted concept. This concept is not confined just to business and economic classes, it touches our day today life as well.
Witness to this will be… Say if you want to eat samosa yourself, you will buy from the nearby shack rather then make it yourself… but if you were with a bunch of friends or you have big family (say about 10 people) then you might as well fry it from your kitchen…because the cost (perceived) of frying from your kitchen for one person is higher then buying from a shack… but for 10 people the perceived cost of local production (from your kitchen) is lesser then buying from the shack.
The other evening while I was having my normal hybrid exercise (half-way walk and half-way jog), I was pondering on how can I reduce my personal expenses…Off late, due to pressure to take possession of my house, I’m kind of crunched in budget because I have to give a final settlement amount and also I need to have some woodwork done… Somewhere a thought just struck me, whether parting with my roomie (about 2 months back) was/is economically wise?
Going by the above concept and also by stereotypical assumption, household expenses when spread across more people comes down (put aside fixed cost like rent, electricity, cable, newspaper, maid, etc., which anyway are). So the answer to the above question was initially “Off-Course”; because the fixed costs were shared then. Since I was anyway prepared for bearing all the fixed cost myself, so I tried drilling down by probing the question a bit further to other cost. I tried using something similar to ceteris paribus concept (all other things constant) by putting the fixed cost environment constant or vanished. I tried analyzing the impact of variable cost in solitary because I thought (Economy of scale) my variable cost would have shot up like wild weeds. (Variable cost comprises of groceries, toiletries, entertainment, etc. this are cost based on consumption level – the more you consume the more the cost is).
So, with an ear phone plugged and sweat all over, drilling down my domestic cost and comparing against some previous month data, while at a motion of about 10 KM/Hr was quite woody in the head. But somehow I wade through the woods of my mind… Continue reading