Season 3, Episode 11: Students often find production and costs mind numbing. This clip helps connect some of these concepts to the real world. “Wine Balloon,” owned by Eric Corti, produces a wine-preserving product. The product currently sells for $22 and costs $6.50/unit when production is at 700 units. The sharks advise that the potential to cut costs are huge and hence increase revenue. If he produces 100,000 production cost per unit will fall to $2.50. That would be a $4/unit savings! This nicely illustrates economies of scale. Students can be asked to calculate total costs using the average cost formula for both low and high production levels. Other exercises include drawing short and long run output expansion average costs curves and average fixed costs curves.
