Question

1. Name a business that you believe has experienced declining costs attributable to computerization.
2. Were variable costs reduced?
3. What fixed costs increase was involved?
4. Does it seem clear that average total cost (ATC) went down? Explain.

Answer 1

Many businesses have nowadays been able to cut costs by leveraging the benefits of computerization. Economists like Thomas Friedman have supported the idea that computerization and other factors have infact led to a more connected world. Friedman in his book "The world is flat" writes about the idea of the world becoming more and more flatter with the emergence of technologies such as computers and the Internet.

Although there are many such examples where computerization has led to declining cost, we can take a simple example of the automobile industry. Earlier car manufacturers had to employ human labour in what is known as production lines to fit the car parts. Also the parts had to be manufactured by hand which required a tremendous amount of human labour. After computerization human labour requirement was significantly reduced. Robots powered by computer programs can not only manufacture with utmost accuracy but also scale up the production according to market demand as they are not susceptible to fatigue which a human is. Robots are not only used just for production but also for fitting the parts which precision.

With the onset of computerization human labour requirement has come down drastically especially in the automobile industry. Human work is limited mainly to supervision of the work and system breakdowns. Other than these most of the work in car factories is done by automated robots. Thus we can say that as the labour requirement has gone down therefore variable cost has declined in this industry due to computerization.

Fixed cost increase involved the one time installation of robots and automated systems which guide the robots in their work. Other fixed costs that may be involved was the restructuring of production lines for maximum effiiciency according to the computerized robots.

Average total cost(ATC) which is the sum of average variable cost and average fixed cost has gone down for the automobile industry due to automation. This is because the average variable cost is reduced considerably due to reduced usage of manpower. Although the fixed cost has increased the increase in fixed cost will be spread as the number of units of cars produced increases and will be reflected by the decreasing average fixed cost. Therefore it is clear that average total cost will reduce in the long run after computerization.