Question

Explain how Amazon opening 1000's of new warehouse facilities illustrates important economic principles of long-run cost minimization? What must be true of the cost of the new warehouses compared to the alternative method such as deliveries?

Answer 1

Ans: First Part: When you undertake large scale production in the long-run it help you to reduce your cost per unit as the total cost is divided into large no. of output. Similarly Amazon opening 1000's of new warehouse facilities will help to reduce the over all cost of setting up the warehouse facilities as the total cost will be divided among the all warehouses.

Ans: Second Part: The true cost of new warehouses will based on various factors cost of land, cost of labors, etc. The actual cost can be determined only after you analyses all the relevant factors. If more no. of warehouses created will help to reduce the cost as compare to alternative method such as deliveries.