Last week in my column, I wrote a list of reasons explaining why the new health care bill will inevitably increase the cost of health care. Based on the feedback I received about the column, however, it seems that I did not do a good enough job explaining one of these reasons.

I will attempt to alleviate this mistake by explaining that point more in-depth.

I said, “The law of supply. This law states that as you produce more of something, the cost per unit increases.

This means that if we increase the amount of health care consumed by X percent — both by insuring more people overall and because of the above effects — the total cost of that health care will increase by more than X percent of its current costs.”

Multiple sources of feedback which I received seemed to believe the law of supply actually stated the opposite is true. That is, as the amount of something produced increases, the cost per unit will decrease.

What I assume happened is the law of supply was confused with the phenomenon called “economies of scale.”

To understand this, you must know the difference between fixed and variable costs. A fixed cost is one that is independent of the amount produced, whereas a variable cost is one that is incurred each time you produce another unit of whatever you are producing. For example, a factory might be a fixed cost, whereas raw materials would be a variable cost.

If you have a $1 million factory and you produce 1 million widgets, the costs of the factory will be incorporated into that good at a cost of $1 per widget. If you produce 2 million widgets with that one factory, however, the cost to offset the factory will only be 50 cents per widget.

Thus, by increasing the amount you produce, your costs have been reduced because the fixed costs have been spread out between more widgets.

That is economies of scale. It applies to individual businesses, but not an industry as a whole. It is completely different than the law of supply.

Imagine that, for whatever reason, you want to double the amount of corn produced by the United States. Where would you plant your corn?

You would probably like to plant it in Iowa since that’s where you would be likely to get the highest yield. Unfortunately, much of the land in Iowa is already being used to grow corn for that very reason. That means that much of your additional corn will have to come from other places.

You will be forced to plant in places with less fertile soil or a climate that is not optimal for corn. As a result, you will have to purchase more land than you otherwise would have. This land is still valuable, as it can be used for things other than corn, so in the end it will cost more per bushel of corn than if you would have been able to buy land where corn is most efficiently grown.

You will also have to employ workers to grow and harvest the corn. Unfortunately, most of the people who know about growing and harvesting corn are already employed doing just that. This means that you will have to hire more, less efficient workers to offset this lack of experience.

That is the reason behind the law of supply.

The best, cheapest and most efficient means of production are purchased first because they are the best, cheapest or most efficient. That is why if you look at a supply and demand graph, the line with the “S” by it slopes upward. Price and quantity supplied have a positive relationship.

If this were not the case, it would mean that producers would purchase the worst land, the worst machines and the worst buildings first. They would hire the most incompetent workers immediately and only begin to buy hire the best when the supply of the worst had been exhausted.

The law of supply — unlike economies of scale, which is more appropriate when applied to a single business — can be applied to an industry as a whole. Say, the health care industry for example.

As I stated last week, due to the law of supply, “if we increase the amount of health care consumed by X percent — both by insuring more people overall and because of the above effects — the total cost of that health care will increase by more than X percent of its current costs.”

Blake Hasenmiller is a senior in industrial engineering and economics from DeWitt.