The Concept of Economic Efficiency 45 



model was an assumption that factors could be varied by small 

 amounts. In some instances, however, there are technical reasons 

 why factors can be employed, or some activity performed, only in 

 large, indivisible doses; ^^ it may not be feasible to vary output by 

 small marginal adjustments.^* If the minimum increment to output 

 that would be feasible is large in relation to the market, a reduc- 

 tion in price per unit on all units of output may be required to 

 clear the market of the total. For example, in some industries, 

 production involves thermal processes in which vast quantities of 

 coal are consumed. The sulfur content of coal, drawn from some 

 sources, is quite high, and it is liberated in combustion. The sulfur 

 can be recaptured, however, in the form of ammonium sulfate, 

 which has value as a fertilizer. But the material is bulky (low 

 plant nutrient per unit weight) and cannot be transported long 

 distances without incurring prohibitive transport costs. The mini- 

 mum amount which can be produced, therefore, from the stand- 

 point of a reasonable cost per unit, is very large in relation to the 

 market. The production of a technically efficient amount of 

 ammonium sulfate under these circumstances accordingly results 

 in a substantial effect on the price of plant nutrients in order to 

 clear the market. 



Conditions of this kind are incompatible with assumptions of 

 the competitive model, for the producer cannot consider the 

 market price as given, but must appreciate that it will be affected 

 by his output. He will appraise the market value of his output as 

 a decreasing function of the quantity supplied. Marketing a larger 

 amount requires a reduction in revenue per unit on total sales, in 

 addition to the change in costs associated with the expanded output. 

 Unless the revenue from the additional units sold is enough to 

 compensate for the reduction in revenue per unit on all of his 

 output and the change in marginal costs, there is no incentive for 

 the producer to increase output. The determining consideration. 



" For a recent summary and extension of the developments in regard to this 

 aspect of the production function, see Harvey Leiberistein, "The Proportionality 

 Controversy and the Theory of Production," Quarterly Journal of Economics, 

 November 1955. 



" If the technically most efficient scale of plant is large, although the rate of 

 output can be varied marginally, the rate which permits the minimum average 

 cost of production may be very large. 



