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 (continue production). Losses would be greater in the short run if they shut down. As an economic consultant, what would you advise Sony Corporation to do in light of the competition from the other manufacturers? Be as specific as possible in your answers; and justify your answers.
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 (continue production). Losses
would be greater in the short run if they shut down.
As an economic consultant, what would you advise Sony Corporation to do in light of the competition
from the other manufacturers? Be as specific as possible in your answers; and justify your answers.
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