Law of Mass Production

The law of mass production ( English law of mass production ) states in business administration that with increasing production volumes, production costs (per unit costs ) decrease, so that in a company , either the price reduced, or - the - at constant prices remaining profits can be increased .

General

Outside of jurisprudence (formal law ), one speaks of a law in the sciences when generally valid statements that apply worldwide are derived from a theory, independent of location and time. The law of mass production was developed by the economist Karl Bücher in 1910 . He assumed that the total unit costs decrease with increasing employment , because - with constant variable unit costs - the fixed costs per unit decrease hyperbolically . However, this law applies not only to industrial mass production , as he assumed, but to any company with fixed costs.

content

The starting point is the total unit costs , which result from dividing the total costs by the production quantity : ${\displaystyle Sg}$ ${\displaystyle Kg}$ ${\displaystyle M}$

${\displaystyle Sg={\frac {\text{Kg}}{\text{M}}}}$.

The total unit costs are made up of fixed and variable unit costs. With an increasing production volume, the total unit costs decrease due to the fixed costs - with constant variable costs - and result in a degression of costs: ${\displaystyle Sg}$ ${\displaystyle Kf}$ ${\displaystyle Kv}$

${\displaystyle Sg={\frac {\text{Kf}}{\text{M}}}+Kv}$.

The prerequisite for this is a linear cost trend . Degression of costs therefore means a relative reduction in costs due to the decreasing tendency of total costs with increasing production quantities. Unit costs are falling when the marginal costs are less than the unit costs: ${\displaystyle G}$

${\displaystyle G<Sg}$.

The minimum amount from which this economies of scale begins to become beneficial is what books call the “threshold of mass production”. In 1960, Erich Gutenberg spoke of a “critical crowd” and criticized that books had not recognized clearly enough that two different facts were inherent in the facts he analyzed. By the “usable height”, Bücher understands that production volume at which the lowest relative production costs result (cost optimum).

meaning

Global industrial mass production in particular uses the knowledge of this law. The production volume ( English output ) can be expanded to the existing capacity limit with decreasing fixed unit costs. If the capacity even by expansion investment increases, the set of scale growing operation size by economies of scale in the form of increasing returns to scale ( englisch economies of scale ) continued. Therefore, the law of mass production encourages companies to organic business growth at, thus increasing the market share (and market power can be increased). The more mass production is expanded, the more a company can lower the price of these mass products. Since the production of larger quantities allows lower cost-covering prices, cutthroat competition emerges , which theoretically ends in the so-called natural monopoly . The law makes use of the effect of fixed cost degression .

Individual evidence

1. ^ Karl books, law of mass production , in: Journal for the entire political science No. 66, 1910, p. 429 ff.
2. ↑ Reinhold Sellien, Dr. Gabler's Wirtschafts-Lexikon: second volume , 1977, col. 1779
3. ^ Karl books, The emergence of economics: lectures and essays , Volume 21, 1922, p. 103
4. ↑ Erich Gutenberg, Fundamentals of Business Administration , Volume 1: Production, 1960, p. 82