Thread: Future of M92
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Old 05-04-2013, 04:16 AM   #58
slex
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Posts: 294
Karma: 1196776
Join Date: Nov 2008
Location: Bulgaria
Device: Kindle 4 NT, Onyx Boox M92
Quote:
Originally Posted by FinancialWar View Post
wow, look at all the people here who acting like some kind of hot shot CEO but does not even understand the law of diminishing marginal returns and most basic economics.
The law of diminishing marginal returns is valid only in the short term when there is only one variable factor of production.

And as far as basic economics goes, a shift in the demand curve to the right will lead to a price increase, ceteris paribus, but going beyond basic economics and to the real economy, we can afford to discard the ceteris paribus, and in this case, I would say - we should.

What you are missing in your analysis is that a secular increase in the demand for 9,7 inch readers will allow Onyx and other producers to respond by varying production not only within current capacity, but also by changing capacity and choosing an optimal production plant size. This is something they can't do now, as they are constrained by the limited demand.

Of course, this means that we are entering the long run and then the curves you see are different. In principle, a firm's supply curve is the upward sloping part of the marginal costs curve above the average variable costs curve (MC above AVC). But a firm can change it's plant size and so it will face different MC curves (hence it will have different supply curves, too). So, the relevant graphic is here:


An increase in the demand for large screen readers will allow the producers to increase the plant size and to produce not with the size shown on the left, but with the one shown in the middle. The new MC (here SRMC) means that there will be a new supply curve, which, as you can see, has now shifted to the right.

You can also check this graph:


As others have written, there are economies of scale, which are not utilized when the demand is low. Hence, producers can't reach the minimum efficient scale of production. If the demand curve shifts to the right, most probably the supply curve will shift to the right, too.
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