Help me understand basic economics here. According to the supply curve it costs companies more dollars per product to supply larger quantity of products. But with economy of scale isn't it supposed to be the opposite? The more products a company produces the cheaper should be the production cost of each product. What don't I understand here?
The supply curve refers to the sales price, the economy of scale refers to the cost price. The supply curve says that when demand increases and supply is unchanged then the price may go up. Economy of scale is a term that refers to unit cost savings that can be had from increasing production.
I haven't had time to give you a full response, but check out this interactive S/D graph. I think it might better explain what is going on in the mainstream view for you.
This may help:
Eugene:According to the supply curve it costs companies more dollars per product to supply larger quantity of products.
All a supply curve shows is that with an increase in price, there will be a greater quantity supplied to the market.
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