Forum Discussion
Bobbo
Oct 31, 2013Explorer II
Francesca Knowles wrote:
A five pound tank holds about a gallon, is much smaller- and, weirdly, is much more expensive to buy than a twenty pounder!
Economy of scale. How many 20 pound tanks do they sell for every 5 pound tank? Think about it.
If it costs $10,000 to set up the equipment, that has to be amortized over the entire run. If they make 1,000 tanks, they have to increase the cost by $10 just to cover equipment setup.
Now, if they produce 1,000,000 tanks, they only have to add 1 cent to the price of each tank to cover the equipment setup.
Fixed costs divided by number of pieces sold. VERY few 1 gallon tanks are sold, but 5 gallon tanks are sold by the truck load.
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