ABSTRACT
This chapter presents a model or an analytical framework which identifies the conditions under which standardisation might be expected to result in cost savings. It focuses on the opportunities for savings within weapons procurement. Standardisation is believed to offer reductions in the unit costs of weapons through a more efficient utilisation of North Atlantic Treaty Organization's resources currently allocated to defence research and development and production. Economies of scale are one of the major sources of cost savings from standardisation. Scale economies show the reductions in unit production costs when a firm is able to increase in size by varying all its factor inputs. Scale curves show the unit costs of producing a product at different scales of output during a specified time period, usually a year. The chapter explores various techniques that are used to estimate scale curves. Various pieces of evidence suggest that there are potential and substantial gains from free trade in weapons.
