Answer to Question #197428 in Microeconomics for aman

Question

Flat Screen Televisions Lose $126 per Unit Sold: Sony Corporation

Most of the cost of a flat-screen TV involves the LCD panel. Globally, 220 million flat-screen TVs were sold in 2011 for $115 billion. Although scale economies in massive factories and volume discounts on electronic input components have driven the cost of LCDs down from $2,400 to $500 the last decade, the price has fallen even faster. In 2001, the average selling price of a large LCD panel was over $4,000. By 2011, this price had fallen below $600. Sony Corporation finds its flat-screen TVs now fail to cover the full cost of the LCD panels and instead impose a $126 ($500 - $374) loss per TV sold. Nevertheless, the indirect fixed costs of the LCD factories including Korean Samsung, Japanese Sharp, Panasonic, and Sony constructed are partially covered by continuing its operation Losses would be greater in the short run if they shut down.

Answer 1

When there are fine and smart improvements in production technology like is happening in the industrial revolutions, the supply of similar products in the market increases. This impacts on the supply curve by moving it to the right.The quantity produced and supplied increases thus decreasing the equilibrium price of the product.

For the case of Sony Corporation, if it faces losses but can still cover variable costs incurred the its should continue with its production. But if the losses are so severe that the Corporation is unable to cover its fixed costs, it should immediately shut down.