Laptops and the Economy of Scale

The sales in the laptops have been increasing more than 60% per year continuously for the past 4-5 years. In the mean while the cost of the laptops has decreased continuously in the same time period, with even laptops costing below 200 dollars available from branded laptop manufacturers and distributors. This reminds me of the famous and most common principle in economics: The economy of scale.

For those who do not know, “the economy of scale”. The economy of scale is the cost advantages that are obtained due to expansion. Henry Ford was the first to use this strategy in a large scale when he wanted every man to have his own personal car. Now how does it apply for a laptop?

A laptop as we can know consists of various key parts: The Processor, The memory, the mother board and the outer case including the body, keyboards etc. Out of these, the processor primarily manufactured by Intel, the memory and the motherboard are capital intensive whose per unit cost would reduce considerably if the number of units increases. Whereas the other parts will have a significant variable cost component in it and may not decrease so much. Thus with increase in units manufactured, the cost of these components (The processor, the motherboard, the memory) will decrease thus decreasing the cost of the laptop. Perhaps, now you can speculate the reason why you can get netbooks costing below 200 dollars which is branded and good.

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