If producers know their products will sell for more, options to ramp up production start making more sense.
The consumer usually does not foot the cost of increased production. Why would they? In fact, the consumer can reasonably expect lower prices as a result of economies of scale.
The money has to come from somewhere. It usually comes from lenders. If producers can guarantee sales, lenders are happy.
If you build a bigger plant you generally spend more up front but less per unit, while if you take your existing plant and pay workers to go on 24hr shifts your costs may go up a lot. And if you pay for rush handling when things break (couriers for broken parts to minimize downtime) and rush shipping of incoming materials (since slow cheap shipping takes a long time to catch up with your increased production) that’s another increase. When you push hard to maximum production you should expect diseconomies of scale.
You’re suggesting that the costs instead come from lenders?
But then production will be limited by the point where the marginal cost of a unit exceeds the price before the emergency (assuming financing is free), instead of the point where the marginal cost exceeds the value during the emergency. That is, you’ve unnecessarily limited production.
The consumer usually does not foot the cost of increased production. Why would they? In fact, the consumer can reasonably expect lower prices as a result of economies of scale.
The money has to come from somewhere. It usually comes from lenders. If producers can guarantee sales, lenders are happy.
If you build a bigger plant you generally spend more up front but less per unit, while if you take your existing plant and pay workers to go on 24hr shifts your costs may go up a lot. And if you pay for rush handling when things break (couriers for broken parts to minimize downtime) and rush shipping of incoming materials (since slow cheap shipping takes a long time to catch up with your increased production) that’s another increase. When you push hard to maximum production you should expect diseconomies of scale.
But those costs still don’t have to be passed on to consumers.
You’re suggesting that the costs instead come from lenders?
But then production will be limited by the point where the marginal cost of a unit exceeds the price before the emergency (assuming financing is free), instead of the point where the marginal cost exceeds the value during the emergency. That is, you’ve unnecessarily limited production.