INTRODUCTION

Ever since Adam Smith gave expression to his now-famous dictum, ‘the division of labour is limited by the extent of the market’, the issue of economies of scale and optimal scale has figured prominently in the economics discussion. Smith pointed out that larger markets permit greater specialization of labour and machinery, which leads to significant unit-cost reductions. Other factors, such as technological relationships, permitting equipment having greater capacity with a less than proportional increase in investment, and indivisibilities, which make it worthwhile to spread the costs of lumpy equipment, initial product development or setting-up machines over a larger output, also have been considered sources of economies of scale. Economic efficiency, since Smith, has been closely connected to increases in scale.