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Old 12-03-2008, 11:22 AM   #21
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I guess I'm easily impressed, but this "how can they sell it this cheap" thought occurs to me even for mundane items. For example, a 60 lb bag of instant concrete. There's a lot of energy that goes into making the Portland cement in there, and the gravel and sand have to be quarried and shipped, then a plant has to mix everything together. It gets bagged, stacked on a pallet, warehoused for some time, then shipped to my Home Depot. I buy it for $2.75. That cost includes all the energy for the cement, all the mining costs, all the production costs, all the shipping costs, and profit for every step of production. I'm surprised they can just store and ship a 60lb bag of anything for $2.75.
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Old 12-03-2008, 12:10 PM   #22
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Originally Posted by samclem View Post
I guess I'm easily impressed, but this "how can they sell it this cheap" thought occurs to me even for mundane items. For example, a 60 lb bag of instant concrete. There's a lot of energy that goes into making the Portland cement in there, and the gravel and sand have to be quarried and shipped, then a plant has to mix everything together. It gets bagged, stacked on a pallet, warehoused for some time, then shipped to my Home Depot. I buy it for $2.75. That cost includes all the energy for the cement, all the mining costs, all the production costs, all the shipping costs, and profit for every step of production. I'm surprised they can just store and ship a 60lb bag of anything for $2.75.
Yes, you've made a good observation. I don't think our children appreciate the things that are now taken for granted. Even ourselves have to pause occasionally and reflect on how lucky we are to be living in this modern day.

That said, it is amazing what we can leverage from capital equipment and fossil energy. More than twenty years ago, the writer of a National Geographic article about China was taken aback when, in his visit to the countryside, he saw two laborers sitting across a railtrack pushpulling a saw to cut it in half. He estimated that it took these two men a hour or two to do the job that would take a Western worker minutes with power tools. The Chinese did not have the capital equipment that Westerners took for granted.

Forward to the present time. I don't know if you have a HarborFreight store near you, but the Chinese-made tools there are useable. Once you have the basic tools, you can bootstrap yourself up, making better and bigger tools and equipment.

Still, capital equipment needs fuel. What comes next after "peak oil"? I hope technology will come to the rescue once more.
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Old 12-06-2008, 03:45 AM   #23
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Almost all manufactured products benefit from a learning curve. The general rule of thumb first observed back in early in the 20th century (Model T) and turned into a almost science by operation researchers during WWII, was that if you double cumulative volume of something you manufacture you reduce the cost by 15%, i.e the 2nd, 4th, 8th ,16, 32nd)

E.g. If the first Microwave cost $2,000 by the time you made a 1,000 (approximately ten doublings) it will cost $400 (.85^10th power)*$2,000 and when you make the million about $75.

Now there are different learning curves for most products but it is amazing how many are close to a 15% curve.

I calculated the cost reduction for the 1 millionth microprocessor I was involved in and was surprised that learning curve was just over 20%. So the cost of the $2,000 microprocessor dropped to $20, but our price dropped from $500 to $100. Still 20% vs 15% does explain why electronic price drop faster than most other manufactured goods.

A significant cost saving is achieved by substituting capital for labor, which I explains why China was the number one loser of manufacturing jobs in this century.
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