Full text: Small and Big Business

-scaled of 
where x denotes /capacity, a a constant and b the so-called 
scale factor which according to the above reasoning should 
be around 2/3; in practice it takes different values for 
different kind of plant, in most cases rather lower than 
one, the difference indicating the amount of the economies 
of scale. The scale factor b is much used in practice by 
engineers making estimates of the cost of equipment. 
According to the engineering data, automation also decreases the 
capital coefficient, increasing at the same time the scale 
of production. This is partly explained by continuous running 
in three shifts, but more basically by the continuity of 
utilisation inherent in the technique itself. 
All this is not to say that the capital-coefficient never 
increases with size. In fact, there are cases when it must 
so increase: for example large units (of presses etc.) are 
used even though they increase the capital coefficient and 
yield a lower return on most ordinary jobs, because certain 
jobs cannot be performed at all without the very large equipment. 
Again, the capital-coefficient will depend inter alia on 
prices of equipment and wages. In development countries where 
modern large scale equipment is imported the price relations 
may cause the capital coefficient to be quite different from 
what has been quoted above. In advanced countries, however, 
3) This may partly explain data given by A.K.Sen: Choice of 
Techniques. Oxford 1960 (Appendix C) and G.K. Boon: 
Economic Choice of Human and Physical Factors in Production. 
Amsterdam 1964.

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