Economic Illiteracy

[kevin_standlee]

I am dealing with an economic illiterate today. Eventually I will get tired of it and stop answering. After all, it's like teaching a pig to sing.

Specifically, the discussion was over variable and fixed costs of a convention membership. Variable costs are those that directly vary with the membership. You sell more memberships, you need more program books. Fixed costs are those that don't change, or don't change much within the range of anticipated attendance. The cost of renting your function space is fixed unless your membership count changes radically. The cost of annual filing fees for your non-profit corporation are fixed no matter what.

I responded to someone who started getting into fine-grain discussion of how much per member (in variable costs) computers for registration or other pieces of the convention cost. You're misleading yourself if you pretend that such fixed costs are variable. If you sell one more membership, you do not go buy twenty-five cents' worth of computers.

Anything in excess of the variable cost of servicing a membership goes toward paying the fixed overhead costs. That's elementary business economics. Trying somehow "allocate" overhead so that ever member is responsible for renting 1.37 folding chairs is a foolish exercise.

Comments

[kevin-standlee.livejournal.com]

I didn't say you shouldn't be considering allocating some of the membership costs toward paying overhead; what I said is that it's pointless to treat fixed costs as though they were variable.

Since the attending members could (sort of) learn all the information at the Worldcon, perhaps the cost of publications should be allocated entirely to the supporting members.

Only if you don't print publications and send them to the attending members pre-con.

(That makes about as much sense as allocating none of the fixed membership-tracking costs to them.)

I never said that! What I said was that you don't go buy $0.25 worth of computer when you sell another membership. You don't go buy $3.17 worth of convention center when another member joins the convention. Your computer and facilities costs did not change. However, you are committed to spending $10 more than you were before in publications, so your total costs did change.

What I'm also saying is that whatever to take in over the variable cost is allocated to paying all the fixed costs.

The total variable costs for all members is much less than the total cost. Claiming that low variable costs for somebody enables a low price doesn't scale.

By that reasoning, we shouldn't sell supporting memberships for less than the cost of an attending membership.

[sethb.livejournal.com]

There's no reason to charge supporting members for the cost of supplies for the Con Suite. Charging everybody the average cost (plus a safety factor) for the class of membership makes sense. (Then you have to allocate fixed costs among the classes of membership, but that might be done by allocating costs that apply to several classes proportional to the membership of each class.)