Day 342: Economies of Scale

There was one thing that blew my mind when I first learned about it in economics class called economies of scale. All it means is that there are cost savings to producing lots of something rather than a little of something in many cases. This is a pretty intuitive topic (like many things in economics). Everybody knows hand crafting one thing will cost a lot for the materials, not to mention a lot of time, but a machine can mass produce a hundred of them and suddenly the cost of production per unit is much lower. Less time is spent creating something by hand, and buying the materials en masse is going to get you a better deal (a purchasing economy of scale), plus better technology might use the materials more efficiently (technological economy of scale). All this results in a lower average cost per product. Maybe a hundred of those factories producing hundreds of thousands of products could get an even better deal on the materials, or find cost savings in other ways like leveraging that huge amount of capital to get a better rate on a financial loan for the materials (financial economy of scale). Keep scaling up and eventually there will come a point where there's no way to get more cost savings by making more stuff. Of course for many products, those diseconomies of scale, EI higher costs per product produced, are at such huge numbers that it's incredibly difficult to even reach that level of production. This is how massive companies are able to outcompete smaller businesses. I know you personally can probably make a better burger than a McDonalds, but how much more does it cost you to make and sell that burger? Probably a staggering percentage when you do the math.

LRAC here stands for Long Run Average Cost.

Now you're probably wondering, what on Earth does this have to do with writing? Well I think it's an important topic to understand for a few reasons.

Number one, a writer can personally benefit from economies of scale by simply producing more stuff. Writing for two hours may bring on a certain feeling of being 'in the zone' while writing for only one hour may not. That second hour of writing, at least in my experience, is pretty much always more productive than the first. Same goes for the third, sometimes even the fourth if I'm feeling really good. In this case, every sentence costs a little less time, or a little less effort the more sentences are written. Up to a point of course.

Other professionals can pump out much more. Stephen King is famous for being one of the most productive writers out there with multiple books a year at his height. The man had to create a new pseudonym just so he didn't flood his own market, which is a great example of a diseconomy of scale by the way. He wrote so much he landed on the second half of that curve. Crazy.

It's also an excellent detail to include during world building. One thing I love putting in my stories are huge organizations that tend to benefit from these economies of scale. Understanding how they work can make giant companies, guilds, or factions a lot more believable. For example, in 'The Lord of the Rings' the big evil Sauron recruits his underling Saruman in no small part because the dude is an unscrupulous capitalist. He creates his army of ten thousand orcs by utilizing economies of scale and a particularly adept set of orc middle management. There are many sweeping shots of the orcs, but here's one small detail that makes this army really believable.

Without this interaction, a viewer might be left wondering why on Earth they tried to burn the forests. Now it seems perfectly logical, if totally devoid of any morals to burn a forest of sentient trees.

Economies of scale apply particularly well to video games too. Games like 'Factorio,' the X series of space exploration games, empire builders like 'Mount and Blade,' and of course the 4X genre (explore, expand, exploit, exterminate) all heavily rely on the principle. Sometimes it happens organically, but often the player has to specifically build their empire such that the economies of scale work in their favor. Otherwise they might run into problems similar to our orc middle manager's complaints of running out of fuel.

Economies of scale is a straightforward idea, yet can be complex in it's concrete application. Finding a sneaky way to include some small economic details can make all the difference between a meaningless set of numbers, or a sprawling economy whose sheer mass unfolds before the reader's eyes to really nails that sense of BIG. See if you can find a few economies of scale present in your world and let me know in the comments. I'd love to hear about the cool little details.

Thank you for reading,

Benjamin Hawley