Question

What do each of the following mean in terms of economic methodology (clearly state your assumptions):

I have been able to benefit from spreading my overhead costs?

We have many complementarities in our services?

The efficiency of mass production?

Advertising is critical for my firm since we produce so many similar products?

Answer 1

Spreading overhead costs benefits the producers by helping them set the right selling price. Overheads are distributed over different products and department, hence no products get overpriced or underpriced. This helps in profit maximizing.(assuming the firms makes more than one products and has different departments).

Firms benefit by having complementarities in their services as the sale of one good will generate demand for another good. Hence, the revenue is increased.(Assuming the goods produced are complements).

Mass production helps in reducing the total average costs, thereby generating more profits.(assuming there is enough demand for the good)

When so many firms produce similar products, it is important to create presence in the market and be visible to the consumers. Firms compete to show how their product is better than other similar products. He, advertising is critical.(assuming the market is competitive).