Thursday, November 02, 2006

It's All About Legos

It seems that there will be many unhappy little children running around come christmas time this year. Many of Lego's products are sold out due to the company's efforts to downsize. This is one of the main questions we talked about in class. What is the optimal size for an industry or factory to operate at? Because of the downsize, one Denmark newspaper predicts that Lego will lose $127 million U.S. dollars this Christmas. In the long run was this a good decision to downsize? It is clear that Lego was losing money becuase they were too big. This may be because the diminishing returns were so great that the cost of operating was just too expensive. In theory, to maximize profits a company should produce output until the marginal revenue (MR) is equivalent to marginal cost (MC).

Lego found another way to increase profits by decreasing the variable cost. It found out that if they outsourced a few factories into countries where wages are low, then they could make an even greater profit. And after all, that is one of the main reasons businesses exist.

So good luck in trying to find your little brother or sister Lego's for Christmahaniquanzica this year.


Abou said...

I don't care, I want my lego's. Lego's is one of the main reasons i built up my creativity levels. I loved legos. Flooding the floor with a cogillion peices and sitting there and looking at the millions of possiblities as to how to put them together. It was a great feeling to have when i was young.

Jordan Abrams said...

You said that a Denmark newspaper said that Lego's will lose 127 million dollars this Christmas, but later you said that Lego will increase their profits by decreasing their variable cost. I don't think that by decreasing their variable cost they will increase their profits, Lego's will just become more efficient.