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To: TimF who wrote (85)	12/17/2001 9:03:55 PM
From: Don Lloyd	Read Replies (1) \| Respond to of 445

Tim - <<First, extra economic resources have been consumed, with material and labor variable cost expenditures both increasing by 60% from $4,000 to $6,400. Secondly, fixed costs have doubled from $10,000 to $20,000 as two independent companies must be created and maintained. Between these increases, total costs have increased more than 82%>> I submit that instead of an 82% increase in total cost for the extra 60% production you might instead get a total cost increase that is lower then production as the competition caused both companies to slash costs and improve efficiency to compete. Also as odd as it sounds you can get some economies of scale even though each competitor sells less then the old monopoly did. Suppliers will have to produce more which will initially raise the price for components but in the long run might lead to economies of scale that reduce the price of components and thus the costs for the two competing companies. Would you make the same argument if costs increased 60% and production increased 82%? Probably. Competition isn't being eliminated, but higher initial profits are being allowed. If you look at an economy as an entity, money, prices, etc., are only catalysts and tools; they are not the economy itself. The economy is fundamentally about maximizing the satisfaction of consumer wants and needs while minimizing the scarce resources of time and materials, raw and transformed, that are consumed in the process. So my concerns relate more to the 60% increase in resources used in producing this product and no longer available for all the other products and services that consumers would have preferred, and to the large reduction in the profits that are going to be needed for investment in new products and in productivity improvement for existing products. The standard of living ultimately has nothing to do with money, but rather with the productivity of labor and other factors of production used in the actual products produced. In this sense, potential competition may be better than actual competition because it allows a higher level of profitability, and doesn't require the extra $10,000 fixed cost, and as it presumably allows the most efficient producer of the specific products it produces to utilize its talents. Yes, a higher volume may produce further economies of scale, but they will likely come anyway as the dynamic mix of products, and the structure of consumer demand continue to evolve. As productivity increases, prices will continue to fall as potential competition must be fought off and less and less eager buyers must be recruited for a given product. At any given time, more volume for this product means a lower volume for other products. Regards, Don