The issue of reviving domestic manufacturing in the United States is very much in the news. An important subset of this question is whether government and utility initiatives such as Smart Grid can reverse the decades long decline in US manufacturing output [verify with graph]. An important place to start is the microeconomic theory of producers and consumers, which hopefully gives insight into the problem of how much capital to risk in a manufacturing venture. The relevant variables should be market size, market share, raw materials costs, equipment costs, tool and die costs, and labor costs. A good reference is available through MIT OCW free of charge at http://ocw.mit.edu/courses/economics/14-01sc-principles-of-microeconomics-fall-2011/unit-3-producer-theory/introduction-to-producer-theory/. This reference introduces the marginal decision rule, a tool for calculating/determining the maximumally profitable strategy. In the example in chapter 8 of the course textbook, an example of street sweeping is used--the Chinese use an army of human street sweepers, whereas in the US, machines sweep the street. In the US, higher labor costs drive decisions to mechanize and automate. This relates to the motive for increased automation that drives the Smart Grid market, and indirectly drives increases in demand for manufactured products. The relevant variable is market size.
However, the question I want to ask is, how much capital does one risk to start a manufacturing enterprise? How many widgets do you plan to make per day, based on anticipated market size, market share (due to competition), and various input costs, including labor. In the case of smart meters, if the rate of adoption is high, the market will saturate sooner. This means that any manufacturing operation of sufficient scale to meet high artificial demand (due to government driving market) may be idle within 5 years, as opposed to 20 years, if smart meters are replaced gradually.
The dilemma for government regulators and policy analysts is how to encourage economic growth through rapid adoption of technology without bankrupting high capital supporting operations such as manufacturing concerns. [this is actually the thesis for a post in its own right]
However, the question I want to ask is, how much capital does one risk to start a manufacturing enterprise? How many widgets do you plan to make per day, based on anticipated market size, market share (due to competition), and various input costs, including labor. In the case of smart meters, if the rate of adoption is high, the market will saturate sooner. This means that any manufacturing operation of sufficient scale to meet high artificial demand (due to government driving market) may be idle within 5 years, as opposed to 20 years, if smart meters are replaced gradually.
The dilemma for government regulators and policy analysts is how to encourage economic growth through rapid adoption of technology without bankrupting high capital supporting operations such as manufacturing concerns. [this is actually the thesis for a post in its own right]
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