Lesson 1: Supply and Demand

Several years ago I was on the north coast (Cabarete area) of the island hanging out with a friend. My friend was a heavy smoker and had just returned from the colmado (i.e. bodega, typical convenient store). He was shaking his head as he recounted his experience. He wanted to buy cigarettes but all they had were the little packs with 10 cigarettes. He wanted the packs of 20 so he asked the owner if they had any.

Store Owner: “No. I don’t stock those any more because they sell out too quickly.”

Lesson 2: Economies of Scale

Another friend decided to hire a local craftsman to make him a chair for his office. So he pulled over to visit the roadside workshop and worked out the details with the little old man he found sitting there. 2,000 pesos for one chair – come back in a week.

My friend picked up the chair a week later and brought it to his office where several of his employees expressed interest. He decided to buy 6 more for the office. So he returned to the old man’s workshop and indicated that he would like to order 6 more chairs. It was 2,000 for one, how much would it be to buy six? The old man thought for a minute…

Old Man: “3,000 pesos each.”
My Friend: “But it was 2,000 for one chair. Why would it be 3,000 each for six chairs?”
Old Man: “Because it will take a lot more material and time. It’s just a lot more work for me.”

Conclusion

Some people are in business just to survive. Not everybody is out to take their business public or start the next Microsoft.

Comments and criticism are welcome.

If you like this post – share it with someone.