Economies of Scale

Economies of Scale - Holzhauer 1 Kristin Holzhauer Econ 110...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Holzhauer 1 Kristin Holzhauer Econ 110 Dr . Peter Toumanoff 2 April 2008 Economies of Scale – The Survivor Principle Throughout the 1950s George Stigler performed extensive work to develop the survivor principle , a method of determining optimum firm size given the current environment. Economic theory regarding scale seeks to find the greatest rate of output for a firm based on a set combination of productive resources; Stigler suggests the survivor principle as the primary means of achieving this goal . In The Economies of Scale , Stigler breaks down his idea extensively and compares his principle with the attempts of other economists to reach the same conclusions . He concludes that survivorship is a simpler, more flexible process than the three alternative methods presented . Once optimum firm size has been established, economists can go on to analyze other variables associated with size that may contribute to more accurate calculations . This knowledge has a great impact on smaller firms competing with larger firms in the same industry . Survivorship is an analytical tool that can easily identify which size has the upper hand. Formulating a conjecture for a firm’s optimum size has “eluded confident measurement ,” given the wide range of variables that influence production (54) . The survivor principle attempts to objectify this historically subjective concept by defining optimum size in terms of private cost . Stigler admits that what is optimum today may not be optimum tomorrow , making it necessary
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Holzhauer 2 to examine details of the time period during which the optimum size is derived . The survivor principle is the economic equivalent to the concept of survival of the fittest . Within an industry, many firms of different sizes compete . Those firms who are first to develop the most efficient methods of production will survive , and the inefficient firms will disappear. This process is motivated by the drive for maximum profits (56) . The underlying factor in the survival technique
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/07/2008 for the course ECON 110 taught by Professor Toumanoff during the Spring '08 term at Marquette.

Page1 / 5

Economies of Scale - Holzhauer 1 Kristin Holzhauer Econ 110...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online