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Economies of Scale

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

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

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