Optimal Size of a Firm Depends on Trial and Error and Changing Circumstances

Rosenberg and Birdzell give an uncommon reason for economies of scale. This illustrated that the common list of reasons is not written in stone. As trial and error yields new ways of organizing business, the optimal size firm will shift back and forth.

(p. 157) The increase in both size and complexity of ironworks that followed throughout the nineteenth century was motivated by a desire to achieve economies in the use of fuel. As to size, within the practical limits of construction, large furnaces lose less heat by radiation than small furnaces and so are more fuel-efficient.

Rosenberg, Nathan, and L.E. Birdzell, Jr. How the West Grew Rich: The Economic Transformation of the Industrial World. New York: Basic Books, 1986.

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