Apple Inc.

Apple incurs both fixed costs and variable costs. Fixed costs include depreciation and rent while variable includes labor, research and development costs .Some of explicit costs include legal fees, advertising, rent and administrative costs. Implicit cost for Apple includes opportunity costs for renting its patents. As the production capacity for Apple continues increasing, it will reach a point when more capacity increment will not lead to considerable improvement in output. The increase in capacity may be through additional workstations, hiring employees or buying and installing more machinery in the factory. The production output for each unit begins decreasing while the return for every additional unit reduces with it- diminished returns (Tucker, 2011). The additional machinery is bound to fixed costs like depreciation which may not be recovered due to reduced production on these machines. Expansion in the production will be less costly and the variable costs in associated may lead more long-run average cost in the production process and hence, less profitability.

Economies of scale refer to cost advantage resulting from more output of a product (Tucker, 2011). Apple benefits a lot from economies of scale which gives it a cost advantage over its rivals; given that its large production volume ensures that there is reduction in variable cost per unit and eventually total cost of production.  The increased production volume means that marginal cost decrease which helps to drive down total cost and hence, the firm is able to always make above normal profits. The firm is able to produce various makes of multi-purpose phones, personal computers music players which help to reduce the variable cost for the firm (Forbes, 2016).

Apple short –run period may be over one year period given that its production process takes about a year to produces new products into the market.  In the period of one year the firm may experience fixed and variable cost changes so that wages, output and prices may not freely attain a new equilibrium.

Reference

Tucker, I. B. (2011). Economics for today. Mason, OH: South-Western Cengage Learning.

Forbes,(2016).#41 Apple. Retrieved from: https://www.forbes.com/companies/apple/