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The cost of any product is normally derived from the production costs of the given product. It is often the goal of the product manufacturer to minimize the cost of the product for several reasons:
* Make the product cheaper allowing a larger audience to purchase the product and hence sell more
* Make the product more competitive (more likely to be bought) as opposed to other similar products by making it cheaper
* Minimize the costs for creating additional products
A great way to achieve these goals is to mass produce.
Say you were making pink tokens. To be able to make one pink token you'd need a designer to design a pink token and an engineer to produce the pink token on a machine. This workforce costs a certain amount, let's say it takes them one month to design and work out the manufacturing process of the pink tokens. Each of the employees is paid 2000$ a month each, and on top of that, you'll need to pay 1$ for the plastic used in the token, 1$ for the manufacture of the token in electricity bills and 5000$ for the machine. In theory, an employee who is paid 500$ can handle the manufacture of 10,000 tokens if he's employed for a moth.
We're left with a situation where the costs for creating the pink token can be split into two categories: fixed and variable. The fixed costs are what is cost to design the token in the first place; in this case it's 2000$ for the engineer and 2000$ for the designer plus 5000$ for the machine to create the tokens. As soon as you start producing the tokens, you'll incurr variable costs. 1$ for electricity and 1$ for plastic for every token. Plus another 500$ for the employee to supervise the production of the tokens.
So to make one token, it would cost us 2000$ engineer + 2000$ designer + 5000$ machine + 1$ electicity + 1$ plasic +500 employee. That makes 9502$ for one token. You're hardly going to be able to sell a peice of plastic for that price.
However, if you produce 10,000 tokens you're going to pay
* Fixed price: 2000$ engineer + 2000$ designer + 500$ employee
* Variable price: 10,000$ plastic, 10,000$ electricity
The total price ends up being 24,500$, however, when you divide that by the 10,000 tokens produced, you get a price of 2.45$ per token, which is considerably less than the 9502$ per token if you didn't mass produce.
What else can I help you with?
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