IV. Some Implications of Economies of Scale 



The existence of economies of scale with present technology, and probable 

 re-inforcement by new technology, is likely to exert increasing influence on 

 the industry. However, the extent of this influence, and the time period over 

 which it becomes operative, will be modified by institutional, firm, and 

 area considerations. 



In a previous report, several factors were enumerated as explanations of 

 how firms of various sizes (and levels of efficiency of operation) could 

 persist in an industry where economies of scale exist, i" These factors de- 

 termine and affect aggregate processing firm costs: 



(1) Size of the supply and distribution areas; 



(2) Supply sources and market outlets; 



(3) Age and condition of the plant and equipment; 



(4) Plant practices and volume; 



(5) Location of the plant; 



(6) Types and proportions of market classes handled; 



(7) Processing stages carried out by unit; 



(8) Importance of unpaid family labor. 



Adjustments which individual firms will make to economies of scale in 

 plant operations are likely to vary with plant size, with the nature of 

 economies in assembling and distributing, and with the degree of inte- 

 gration involved. The study may have greater long-run than short-run ap- 

 plication. Over time, external forces will become less significant. 



In the long run, replacement of resources will nullify short-run cost ad- 

 vantages which now offset some of the inherent economies of scale. Build- 

 ings and equipment may become fully depreciated in terms of usefulness 

 and need replacement at new cost. Increasing pressure will probably be 

 brought to bear on plants by buyers to meet public sanitary or quality 

 standards. Comparable quality and quantity of inputs would be necessi- 

 tated, both in investment, and operating categories. 



As plants strive to become larger and more efficient, volume sales prices 

 will be relatively lowered. Other forces which could exclude smaller oper- 

 ators from additional outlets include: (1) Centralized buying, not only by 

 corporate chains, but also by "independents" through cooperative whole- 

 salers; (2) Disappearance of traditional consumer preferences which trans- 

 cend price differences. 



The number of processing units is likely to decrease and average size 

 to increase. Thus, fewer resources per unit of output will be required in 

 processing. But, the extent to which resources in processing will be reduced 

 will be conditioned by assembling and distributing costs and by the loca- 

 tion of production and the nature and degree of control upon it. Large 

 plants will not entirely displace smaller units, although most factors point 

 to a substantial decrease in their numbers. 



16 Univ. of N. H., Agric. Expt. Sta., Agric. Econ. Res. Mimeo. No. 20, op. cit., p. 13, 15. 



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