Economy of scale. Let’s say I make and sell bottled tea. I need a factory, machinery, labor, and raw materials. Factory rent, and machinery are both good for 100 million bottles a year. Factory rent is $10,000 a month and buy the machinery for $12,000. These costs are fixed. What that means is I would have to pay that if I make one bottle of tea or a hundred million bottles of tea. Labor and raw materials depend on the number of bottles I make – the more bottles the more tea leaves I buy and the more employees I hire.
Now if I produce only 1 bottle a month I still need to pay the fixed costs and minimum amount for raw materials and labor. So I would price that bottle at $11,000 (factory rent + machine cost per month)+ whatever I paid for labor ($1000), and raw materials ($1,00)+ a little bit of profit($100). So I sell one bottle for $12,200 if I want to stay in business.
If I produce 100,000 bottles the pricing changes. Now my expenses are $11,000 (factory rent + machine cost per month)+ whatever I paid for labor ($25,000), and raw materials ($25,000)+ a little bit of profit. So now my expense per bottle is $0.61. I can add $0.39 as a profit and sell each bottle for $1. My profit would be $39,000.
Hope that explains it.
Let’s say iced tea costs the company 10 cents per L to produce.
* If you buy 500 mL for $2.80, the company makes $2.75 profit
* If you buy 1L for $3.00, the company makes $2.90 profit
So you feel like you’re getting a good deal, and the company turns more of your money into their profit, *even after accounting for having to make more product*.
TLDR: Bulk pricing encourages consumers to buy more, which makes the company a bigger profit.
(Yes I know I’m ignoring packaging costs and stuff. frodeem’s answer covers these economy-of-scale considerations very well)
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