The Economics of Nonfunctional Variety

The economic theory of the firm provides a substantial basis for management decisions regarding the level at which production or merchandising activities are to be carried out. The basic criteria for such decisions are generally found in marginal profits to be gained or marginal return of investment to be achieved. The present study extends the application of marginal analysis to that area of decision making which is concerned not with volume or quantity, but with the amount of variety that is to be provided. For this purpose, variety is measurable in terms of the number of varieties or subclasses existing of a given commodity or product group, and in terms of the distribution among the different subclasses of total units of the commodity produced or sold over an appropriate time period. The relations that have been developed can be demonstrated, for the moment, to apply only in areas where variety is predominantly of a nonfunctional nature---that is, pertaining to appearance or style rather than functional performance. They may be presumed to apply in other areas of variegation also, but tend to be obscured where technological, functional, or market factors play an important part.