2 One manhour, more or less is used for each transaction, somewhat
independent of unit price and quantity, so transaction cost can be
more than half the gross for small ticket items if man hours cost $20
on the average, which is near least possible in the USA considering
personel overhead costs.
2 Production costs are often figured separately and may include only
the cost of increasing production by one more unit, or more
realisticly include the depriciation of the machinery, the building
and the total cost of the staff directly envolved in production. Often
raw material costs are as small as 1% of the gross.
Decisions to out source rather than produce the additional units
ordered by customers, is occasionally wise. Paying outside consultants
to make internal decissions is rarely wise in my opinion.
3 Typically the size of the market for widgets is estimated, The
capacity of the competition is estimated, and a factory is built that
can produce several percent of the world market by operating 24/7.
Thinking bigger frequenty leads to under utilization of the new
factory, which usually means loss rather than profit. Often consumers
(out of habit, brand loyaty or ignorence)will pay a preimium for
medium quality widgets, even though a competitor can supply both
cheaper and better. Educating consumers is difficult as too many lies
and exagerations have been told by salesmen, advertisers, and consumer
advisers. 4 Desisions to increase transaction cost mean more
employees are needed to talk to potential customers, and provide
customer service for existing customers, the firm hopes to retain.
Neil |
