Before you build a big factory.

Why has the use of the term "economies of scale" become so widespread? Essentially the phrase grew in popularity when economists started explaining the structure of various industries, particularly the concentration of market power in the hands of relatively few companies. Of course, among other things, power might derive from low cost accompanying large scale. Hence anything that might lead to low costs with increased sales became known as a scale economy. This has been a useful taxonomy for the economist, but, the author argues, a confusing term for the manager. The manager is not interested in explaining market structure in an industry but in reducing costs. The manager's production concerns are at the plant level while the economist's concerns, in this instance, are at the industry level. The eliminate confusion in making decisions about plant size, the manager needs to specify what economies he expects: economies of volume, capacity, and/or process technology. Such scrutiny will clarify a number of issues, thus providing strong support for the final decision. [ABSTRACT FROM AUTHOR]