Full text: Small and Big Business

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 in 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 
v b 
K = a x 
2) For example D. ft&ntraub: Effects of Current and Prospective 
Technological Developments upon Capital Formation. American 
Economic Review, Supplement, March 1939. 
J.S. Bain: Barriers to New Competition. Cambridge Mass.1956. 
C.F. Pratton: 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.
	        

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