Economies of Size 



Two major cost relationships are of concern to feed mill manage- 

 ment: one has to do with the relationship of the size of the mill to 

 average cost of manufacturing, the other with the relationship of short- 

 run changes in output to average costs. The first type, often called long- 

 run average cost, is represented by the solid line in Figure 3. That line 

 and Table 12 show that as the size of the mill increases, the average 

 cost per ton at 100 percent of capacity decreases from $8.59 for Mill A 

 to $4.01 for MiU F. 



Three categories account for 87 percent of the economies. Labor is 

 the most important and accounts for 41 percent of the total economies of 

 size. The ownership and administrative personnel costs are the second 

 and third major source of economies. Ownership accounts for 28 percent 

 and administrative for 18 percent of the total economies. Three other 

 categories, utilities, equipment repairs and services, and miscellaneous, 

 account for the remaining 13 percent of the economies. 



Examination of Figure 3 indicates that further economies of size 

 might exist for larger size operations than considered here. The size 

 curve has not become parellel with the output axis since each successive- 

 ly larger mill model has a lower average cost per ton when operated at 

 its designed capacity. Further economies may be possible with equip- 

 ment possessing greater capacity and by using other technologies. 



Figure 3. Short-Run Cost Curves and Economies of Size Curve 

 for Eight Model Feed Manufacturing Mills 



K.00 



12.00 



IQOO 



o 8.00 



Q. 



6.00 



o 

 Q 



4.00 



2.00 



A through F = mills 



20 30 40 50 60 70 



Volume per year ■ thousands of tons 



80 



90 



30 



