2
In the lower size classes the increase is general and can
easily be explained by the fact that with increasing size
hiring is replaced by ownership of buildings, shops, plant,
premises etc. just as purchase of transport services etc. is
sometimes replaced by ownership of the means of production.
By stretching the term a little, all this can also be regarded
as vertical integration.
As far as production technique as such is concerned there is
now a large amount of evidence, especially engineering data,
to show that with increasing scale of production the capital-
2)
coefficient decreases. In fact this is only an application
of the principle of large scale economies which operates in
the production of the equipment no less than it its operation,
and frequently even more so. More particularly, it is due to
the "economies of dimension": If the surface area of a con
tainer (related to the cost) increases with the square of a
certain factor, the volume (related to capacity) increases
with the cube of this factor. As a consequence the cost of
equipment K is given by
K » a x b
2) For example D. Wintraub; Effects of Current and Prospective
Technological Developments upon Capital Formation, American
Economic Review, Supplement, March 1939.
J.S. Bain: Barriers to Mew Competition. Cambridge Mass.1956.
C.F, Prat ton; Economies of Scale in Manufacturing Industry.
Cambridge University Press. 1971.
J. Haldi and D. Whitcomb; Economies of Scale in Industrial
Plants. The Journal of Political Economy, Aug, 1967.