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  1. avatar says

    Dear John

    I had not realised the value of your lectures until now that I want to sit for my F5 exam on June 2nd 2014. I however feel that on your explanations of closing the “cost gap” you did not talk about varying production levels. Here I am talking about economies of scale. I hope the cost we are talking about is not just the variable cost but also the overheads i.e fixed costs.

    Won’t that be another way of closing the cost gap?

    Thank you.

    • Avatar of johnmoffat says

      Possibly.

      However, the problem is that economies of scale would be achieved by producing more. But there would only be point in producing more if we could sell more, and that would likely mean having a lower price.

      You would usually expect the estimate of reasonable selling price to be tied in with estimate of likely demand.

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