THE EFFECTS OF KNOWLEDGE ECONOMY ON THE COSTS AND COST COMPARISON OF TRADITIONAL AND DIGITAL GOODS

Year 2011, Volume: 3 Issue: 2, 479 - 487, 01.12.2011

Tolga Kara Ece Baban

Abstract

In traditional economics, the cost of production decreases as the production rate increases (scale economics is valid). After a certain level average cost begins to increase again (scale diseconomies) In other words; as the production increases, after a certain level the cost increases gradually. On the contrary, in Knowledge Economics cost decreases gradually as the production increases. Decreasing cost style is one of the most important features of new sector which is formed by Information technologies. The structure of cost in digital goods and services production differs from the traditional production. Producing digital products goods generally require great deal of investment at the beginning. Those investments can be named as “sunk cost”. By this it is meant that, after giving up the investment it is not possible to get the invested money by selling the goods or by other ways. However, once the digital goods are produced their reproduction (copying) is low cost. Consequently, in the production of digital goods as the productions increases, the marginal and average cost decrease and income increases. In production of these types of goods the cost of developing them is important but afterwards cost of copying them or introducing a similar one to the market is so low. Therefore marginal cost is not only low but also equal to zero. In this research mainly the changes in the cost of digital goods and services are examined, however the effects of knowledge on the costs of production of goods and services will be mentioned too

Keywords

Knowledge, Knowledge economics, New economics, Costs

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