Friday, August 24, 2012

The Importance of Economies of Scale

The Economist has a great article looking at the semi-conductor industry, and given the significantly large fixed costs (about $20 billion) to build new production facilities "fabs", and the tiny variable costs of manufacturing semi-conductors, the semi-conductor industry is driven by economies of scale.

In fact, this is an excellent real world example of what economists call a "natural monopoly".

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