86-553: The Goldwater–Nichols Department of Defense Reorganization Act of October 4, 1986 ( Pub. L. 99–433 ; signed by President Ronald Reagan ) made the most sweeping changes to the United States Department of Defense since the department was established in the National Security Act of 1947 by reworking the command structure of the U.S. military . It increased the powers of the chairman of
172-673: A slip law and in the United States Statutes at Large after receiving the act. Thereafter, the changes are published in the United States Code . Through the process of judicial review , an act of Congress that violates the Constitution may be declared unconstitutional by the courts. A judicial declaration that an act of Congress is unconstitutional does not remove the act from the Statutes at Large or
258-464: A JPME school that grants JPME Level II credit. Shared procurement allowed the various branches to share technological advances such as stealth and smart weapons quickly, and provided other ancillary benefits (such as improved interoperability of radios and communications between units and members of different services). Joint implementation of new technology allowed for joint development of supporting doctrine. The Goldwater–Nichols Act could be seen as
344-460: A company gains an added benefit by expanding its size. These economies are due to the presence of some resource or competence that is not fully utilized, or to the existence of specific market positions that create a differential advantage in expanding the size of the firms. That growth economies disappear once the scale size expansion process is completed. For example, a company that owns a supermarket chain benefits from an economy of growth if, opening
430-415: A component of the integrated force. Thus USCENTCOM (U.S. Central Command), for example, would be assigned air, ground, naval, Marine, space, and special operations assets to achieve its objectives, not the previously less efficient method of individual services planning, supporting, and fighting the same war. This was successfully demonstrated during Operation Desert Storm in 1991. Another major effect of
516-591: A differentiated demand with respect to the quality of the product, and assistance before and after the sale. Very different organizational forms can therefore co-exist in the same sector of activity, even in the presence of economies of scale, such as, for example, flexible production on a large scale, small-scale flexible production, mass production, industrial production based on rigid technologies associated with flexible organizational systems and traditional artisan production. The considerations regarding economies of scale are therefore important, but not sufficient to explain
602-421: A firm's costs, returns to scale describe the relationship between inputs and outputs in a long-run (all inputs variable) production function. A production function has constant returns to scale if increasing all inputs by some proportion results in output increasing by that same proportion. Returns are decreasing if, say, doubling inputs results in less than double the output, and increasing if more than double
688-576: A hearing of the Senate Armed Services Committee , the beginning of a new effort to "reconsider, and possibly update" Goldwater–Nichols. On January 4, 2016, the deputy secretary of defense issued a memorandum directing an internal review with the objective "to make recommendations for updates or adjustments to organizational relationships and authorities" based on 30 years of experience under Goldwater–Nichols. On April 5, 2016, Defense Secretary Ash Carter outlined reforms in
774-427: A more efficient division of labour. The economies of division of labour derive from the increase in production speed, from the possibility of using specialized personnel and adopting more efficient techniques. An increase in the division of labour inevitably leads to changes in the quality of inputs and outputs. Many administrative and organizational activities are mostly cognitive and, therefore, largely independent of
860-483: A more threatening foe. The Goldwater–Nichols Act brought sweeping changes to the way the U.S. military forces were organized. The first successful test of Goldwater–Nichols was the 1989 United States invasion of Panama (code-named Operation Just Cause ), where it functioned exactly as planned, allowing the U.S. commander, Army General Maxwell Reid Thurman , to exercise full control over Marine Corps , Army , Air Force and Navy assets without having to negotiate with
946-407: A new supermarket, it gets an increase in the price of the land it owns around the new supermarket. The sale of these lands to economic operators, who wish to open shops near the supermarket, allows the company in question to make a profit, making a profit on the revaluation of the value of building land. Overall costs of capital projects are known to be subject to economies of scale. A crude estimate
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#17327718796861032-496: A product X is lower when a single firm instead of two separate firms produce it. See Economies of scope#Economics . Some of the economies of scale recognized in engineering have a physical basis, such as the square–cube law , by which the surface of a vessel increases by the square of the dimensions while the volume increases by the cube. This law has a direct effect on the capital cost of such things as buildings, factories, pipelines, ships and airplanes. In structural engineering,
1118-547: A relationship somewhat similar to the square–cube law. In some productions, an increase in the size of the plant reduces the average variable cost, thanks to the energy savings resulting from the lower dispersion of heat. Economies of increased dimension are often misinterpreted because of the confusion between indivisibility and three-dimensionality of space. This confusion arises from the fact that three-dimensional production elements, such as pipes and ovens, once installed and operating, are always technically indivisible. However,
1204-461: A result, numerous studies have indicated that the procurement volume must be sufficiently high to provide sufficient profits to attract enough suppliers, and provide buyers with enough savings to cover their additional costs. However, Shalev and Asbjornse found, in their research based on 139 reverse auctions conducted in the public sector by public sector buyers, that the higher auction volume, or economies of scale, did not lead to better success of
1290-447: A service chief operationally, the service component forces support the commander responsible for a specific function ( special operations , strategic , transportation , cyber ) or a geographic region of the globe ( Northern , Central , European , Pacific , Southern , Africa Commands), and Space . The combatant commanders then field a force capable of employing AirLand Battle doctrine (or its successors) using all assets available to
1376-564: A speech at the Center for Strategic and International Studies . Act of Congress#Public law, private law, designation An act of Congress is a statute enacted by the United States Congress . Acts may apply only to individual entities (called private laws ), or to the general public ( public laws ). For a bill to become an act, the text must pass through both houses with a majority, then be either signed into law by
1462-733: A unit of capacity of many types of equipment, such as electric motors, centrifugal pumps, diesel and gasoline engines, decreases as size increases. Also, the efficiency increases with size. Operating crew size for ships, airplanes, trains, etc., does not increase in direct proportion to capacity. (Operating crew consists of pilots, co-pilots, navigators, etc. and does not include passenger service personnel.) Many aircraft models were significantly lengthened or "stretched" to increase payload. Many manufacturing facilities, especially those making bulk materials like chemicals, refined petroleum products, cement and paper, have labor requirements that are not greatly influenced by changes in plant capacity. This
1548-440: A variety of organizational and business situations and at various levels, such as a production, plant or an entire enterprise. When average costs start falling as output increases, then economies of scale occur. Some economies of scale, such as capital cost of manufacturing facilities and friction loss of transportation and industrial equipment, have a physical or engineering basis . The economic concept dates back to Adam Smith and
1634-445: Is a correlating relationship between a firm's total sales and underlying efficiency. Firms with higher productivity will always outperform a firm with lower productivity which will lead to lower sales. Through trade liberalization, organizations are able to drop their trade costs due to export growth. However, trade liberalization does not account for any tariff reduction or shipping logistics improvement. However, total economies of scale
1720-632: Is a historically contingent fact, and not essential to the nature of such enterprises. In the case of agriculture, for example, Marx calls attention to the sophistical nature of the arguments used to justify the system of concentrated ownership of land: Instead of concentrated private ownership of land, Marx recommends that economies of scale should instead be realized by associations : Alfred Marshall notes that Antoine Augustin Cournot and others have considered "the internal economies [...] apparently without noticing that their premises lead inevitably to
1806-477: Is based on the exporters individual frequency and size. So large-scale companies are more likely to have a lower cost per unit as opposed to small-scale companies. Likewise, high trade frequency companies are able to reduce their overall cost attributed per unit when compared to those of low-trade frequency companies. Economies of scale is related to and can easily be confused with the theoretical economic notion of returns to scale. Where economies of scale refer to
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#17327718796861892-411: Is because labor requirements of automated processes tend to be based on the complexity of the operation rather than production rate, and many manufacturing facilities have nearly the same basic number of processing steps and pieces of equipment, regardless of production capacity. Karl Marx noted that large scale manufacturing allowed economical use of products that would otherwise be waste. Marx cited
1978-424: Is expanded, including the aspects concerning the development of knowledge and the organization of transactions, it is possible to conclude that economies of scale do not always lead to monopoly. In fact, the competitive advantages deriving from the development of the firm's capabilities and from the management of transactions with suppliers and customers can counterbalance those provided by the scale, thus counteracting
2064-580: Is made by the third method, the presiding officer of the house that last reconsidered the act promulgates it. Under the United States Constitution , if the president does not return a bill or resolution to Congress with objections before the time limit expires, then the bill automatically becomes an act; however, if the Congress is adjourned at the end of this period, then the bill dies and cannot be reconsidered (see pocket veto ). If
2150-442: Is one where the costs of production fall when the number of firms in the industry drops, but the remaining firms increase their production to match previous levels. Conversely, an industry exhibits an external economy of scale when costs drop due to the introduction of more firms, thus allowing for more efficient use of specialized services and machinery. Economies of scale exist whenever the total cost of producing two quantities of
2236-505: Is possible within a particular country—for example, it would not be efficient for Liechtenstein to have its own carmaker if they only sold to their local market. A lone carmaker may be profitable, but even more so if they exported cars to global markets in addition to selling to the local market. Economies of scale also play a role in a " natural monopoly ". There is a distinction between two types of economies of scale: internal and external. An industry that exhibits an internal economy of scale
2322-608: Is saturating the regional market, thus having to ship products uneconomic distances. Other limits include using energy less efficiently or having a higher defect rate. Large producers are usually efficient at long runs of a product grade (a commodity) and find it costly to switch grades frequently. They will, therefore, avoid specialty grades even though they have higher margins. Often smaller (usually older) manufacturing facilities remain viable by changing from commodity-grade production to specialty products. Economies of scale must be distinguished from economies stemming from an increase in
2408-410: Is sometimes used in informal speech to indicate something for which getting permission is burdensome. For example, "It takes an act of Congress to get a building permit in this town." An act adopted by simple majorities in both houses of Congress is promulgated , or given the force of law, in one of the following ways: The president promulgates acts of Congress made by the first two methods. If an act
2494-433: Is that if the capital cost for a given sized piece of equipment is known, changing the size will change the capital cost by the 0.6 power of the capacity ratio (the point six to the power rule ). In estimating capital cost, it typically requires an insignificant amount of labor, and possibly not much more in materials, to install a larger capacity electrical wire or pipe having significantly greater capacity. The cost of
2580-454: Is the number of the Congress and Y refers to the sequential order of the bill (when it was enacted). For example, P. L. 111–5 ( American Recovery and Reinvestment Act of 2009 ) was the fifth enacted public law of the 111th United States Congress . Public laws are also often abbreviated as Pub. L. No. X–Y. When the legislation of those two kinds are proposed, it is called public bill and private bill respectively. The word "act", as used in
2666-573: The president of the United States , be left unsigned for ten days (excluding Sundays) while Congress remains in session, or, if vetoed by the president, receive a congressional override from 2 ⁄ 3 of both houses. In the United States, acts of Congress are designated as either public laws , relating to the general public, or private laws , relating to specific institutions or individuals. Since 1957, all Acts of Congress have been designated as "Public Law X–Y" or "Private Law X–Y", where X
Goldwater–Nichols Act - Misplaced Pages Continue
2752-415: The short-run average total cost (SRATC) curve down and to the right. Economies of scale is a concept that may explain patterns in international trade or in the number of firms in a given market. The exploitation of economies of scale helps explain why companies grow large in some industries. It is also a justification for free trade policies, since some economies of scale may require a larger market than
2838-417: The "physical" point of view of the returns to scale. Furthermore, supply contracts entail fixed costs which lead to decreasing average costs if the scale of production increases. This is of important utility in the study of corporate finance . Economies of productive capacity balancing derives from the possibility that a larger scale of production involves a more efficient use of the production capacities of
2924-779: The Act is the way it has dramatically changed the personnel management of military officers. Many officers are assigned to joint duty positions (occasionally more than once), and are educated in Department of Defense Joint Professional Military Education (JPME) schools as part of their career development and progression. For example, in order to be competitive for promotion to general or flag officer (admiral) (pay grade O-7 or above/NATO OF-6), active component colonels (pay grade O-6/NATO OF-5) (Army, Marine Corps, and Air Force) or Navy captains must have completed at least one joint duty assignment, as well as having completed (or currently be enrolled in)
3010-589: The Joint Chiefs of Staff and implemented some of the suggestions from the Packard Commission , commissioned by President Reagan in 1985. Among other changes, Goldwater–Nichols streamlined the military chain of command , which now runs from the president through the secretary of defense directly to combatant commanders (CCDRs, all four-star generals or admirals), bypassing the service chiefs. The service chiefs were assigned to an advisory role to
3096-489: The Joint Chiefs of Staff or any of the armed forces . Section 162(b) of the act prescribes that "unless otherwise directed by the president, the chain of command to a unified or specified combatant command runs— Goldwater–Nichols changed the way the services interact. The services themselves "organize, train and equip" forces for use by the combatant commanders (CCDRs), and the service chiefs no longer exercise any operational control over their forces. Rather than reporting to
3182-587: The Marine Corps , Chiefs of Staff of the Army and Air Force , and Chief of Naval Operations ). These service chiefs in turn made up the Joint Chiefs of Staff . The Joint Chiefs of Staff elected a chairman to communicate with the civilian government. The chairman of the Joint Chiefs in turn reported to the secretary of defense , the civilian head of the military. Both the chairman of the Joint Chiefs and
3268-556: The U.S. Strategic Command ( USSTRATCOM ). Rumsfeld said the term "CINC" was inappropriate, notwithstanding its employment for many decades, because under the United States Constitution, the president is the Nation's only Commander-in-Chief . His decision was described as intending to clarify and strengthen the military's subordination to civilian government . On November 10, 2015, Senator John McCain announced at
3354-607: The United States Code; rather, it prevents the act from being enforced. However, the act as published in annotated codes and legal databases is marked with annotations indicating that it is no longer good law. Economies of scale 1800s: Martineau · Tocqueville · Marx · Spencer · Le Bon · Ward · Pareto · Tönnies · Veblen · Simmel · Durkheim · Addams · Mead · Weber · Du Bois · Mannheim · Elias In microeconomics , economies of scale are
3440-511: The advantages of external economies linked to an increase in the production of an entire sector of activity. However, "those economies which are external from the point of view of the individual firm, but internal as regards the industry in its aggregate, constitute precisely the class which is most seldom to be met with." "In any case - Sraffa notes – in so far as external economies of the kind in question exist, they are not linked to be called forth by small increases in production," as required by
3526-405: The armed forces effectively blocked realization of this ideal. The U.S. invasion of Grenada in 1983 further exposed the problems with the military command structure. Although the United States forces easily prevailed, its leaders expressed major concerns over different service branches' inability to coordinate and communicate with each other and the consequences of a lack of coordination if faced with
Goldwater–Nichols Act - Misplaced Pages Continue
3612-569: The assumption of free competition to address the study of firms that have their own particular market. This stimulated a whole series of studies on the cases of imperfect competition in Cambridge. However, in the succeeding years Sraffa followed a different path of research that brought him to write and publish his main work Production of commodities by means of commodities ( Sraffa 1966 ). In this book, Sraffa determines relative prices assuming no changes in output, so that no question arises as to
3698-431: The auction. They found that auction volume did not correlate with competition, nor with the number of bidders, suggesting that auction volume does not promote additional competition. They noted, however, that their data included a wide range of products, and the degree of competition in each market varied significantly, and offer that further research on this issue should be conducted to determine whether these findings remain
3784-431: The average cost for all firms as opposed to internal economies of scale which only allows benefits to the individual firm. Advantages that arise from external economies of scale include; Firms are able to lower their average costs by buying their inputs required for the production process in bulk or from special wholesalers. Firms might be able to lower their average costs by improving their management structure within
3870-434: The base of dynamic economies of scale, associated with the process of growth of the scale dimension and not to the dimension of scale per se. Learning by doing implies improvements in the ability to perform and promotes the introduction of incremental innovations with a progressive lowering of average costs. Learning economies are directly proportional to the cumulative production ( experience curve ). Growth economies emerge if
3956-508: The capitalist system is therefore characterized by two tendencies, connected to economies of scale: towards a growing concentration and towards economic crises due to overproduction. In his 1844 Economic and Philosophic Manuscripts , Karl Marx observes that economies of scale have historically been associated with an increasing concentration of private wealth and have been used to justify such concentration. Marx points out that concentrated private ownership of large-scale economic enterprises
4042-402: The chain of command. Additionally, the act states that the chairman and vice chairman of the Joint Chiefs of Staff cannot be representatives from the same service branch. It increased the ability of the chairman to direct overall strategy, but provided greater command authority to "unified" and "specified" field commanders. According to the act, the chairman may not exercise military command over
4128-452: The chemical industry as an example, which today along with petrochemicals, remains highly dependent on turning various residual reactant streams into salable products. In the pulp and paper industry, it is economical to burn bark and fine wood particles to produce process steam and to recover the spent pulping chemicals for conversion back to a usable form. Large and more productive firms typically generate enough net revenues abroad to cover
4214-425: The conclusion that, whatever firm first gets a good start will obtain a monopoly of the whole business of its trade … ". Marshall believes that there are factors that limit this trend toward monopoly, and in particular: Piero Sraffa observes that Marshall, in order to justify the operation of the law of increasing returns without it coming into conflict with the hypothesis of free competition, tended to highlight
4300-447: The cost advantages that enterprises obtain due to their scale of operation, and are typically measured by the amount of output produced per unit of time . A decrease in cost per unit of output enables an increase in scale that is, increased production with lowered cost. At the basis of economies of scale, there may be technical, statistical, organizational or related factors to the degree of market control. Economies of scale arise in
4386-539: The development of modern warfare doctrine. The formulation of the AirLand Battle doctrine in the late 1970s and early 1980s laid bare the difficulty of coordinating efforts among various service branches. AirLand Battle attempted to synthesize all of the capabilities of the service arms of the military into a single doctrine. The system envisioned ground, naval, air, and space based systems acting in concert to attack and defeat an opponent in depth. The structure of
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#17327718796864472-462: The economies of scale due to the increase in size do not depend on indivisibility but exclusively on the three-dimensionality of space. Indeed, indivisibility only entails the existence of economies of scale produced by the balancing of productive capacities, considered above; or of increasing returns in the utilisation of a single plant, due to its more efficient use as the quantity produced increases. However, this latter phenomenon has nothing to do with
4558-434: The economies of scale which, by definition, are linked to the use of a larger plant. At the base of economies of scale there are also returns to scale linked to statistical factors. In fact, the greater of the number of resources involved, the smaller, in proportion, is the quantity of reserves necessary to cope with unforeseen contingencies (for instance, machine spare parts, inventories, circulating capital, etc.). One of
4644-422: The factors underlying the ever-increasing concentration of capital. Marx observes that in the capitalist system the technical conditions of the work process are continuously revolutionized in order to increase the surplus by improving the productive force of work. According to Marx, with the cooperation of many workers brings about an economy in the use of the means of production and an increase in productivity due to
4730-410: The firm increase, the notions of increasing returns to scale and economies of scale can be considered equivalent. However, if input prices vary in relation to their quantities purchased by the company, it is necessary to distinguish between returns to scale and economies of scale. The concept of economies of scale is more general than that of returns to scale since it includes the possibility of changes in
4816-518: The firm is a perfect competitor in all input markets, and thus the per-unit prices of all its inputs are unaffected by how much of the inputs the firm purchases, then it can be shown that at a particular level of output, the firm has economies of scale if and only if it has increasing returns to scale, has diseconomies of scale if and only if it has decreasing returns to scale, and has neither economies nor diseconomies of scale if it has constant returns to scale. In this case, with perfect competition in
4902-454: The firm is so big in one or more input markets that increasing its purchases of an input drives up the input's per-unit cost, then the firm could have diseconomies of scale in that range of output levels. Conversely, if the firm is able to get bulk discounts of an input, then it could have economies of scale in some range of output levels even if it has decreasing returns in production in that output range. In essence, returns to scale refer to
4988-435: The fixed costs associated with exporting. However, in the event of trade liberalization, resources will have to be reallocated toward the more productive firm, which raises the average productivity within the industry. Firms differ in their labor productivity and the quality of their products, so more efficient firms are more likely to generate more net income abroad and thus become exporters of their goods or services. There
5074-616: The founder of political economy as an autonomous discipline. John Stuart Mill , in Chapter IX of the First Book of his Principles, referring to the work of Charles Babbage (On the economics of machines and manufactories), widely analyses the relationships between increasing returns and scale of production all inside the production unit. In Das Kapital (1867), Karl Marx , referring to Charles Babbage , extensively analyzed economies of scale and concludes that they are one of
5160-438: The idea of obtaining larger production returns through the use of division of labor. Diseconomies of scale are the opposite. Economies of scale often have limits, such as passing the optimum design point where costs per additional unit begin to increase. Common limits include exceeding the nearby raw material supply, such as wood in the lumber, pulp and paper industry . A common limit for a low cost per unit weight commodities
5246-479: The increase in the division of labour. Furthermore, the increase in the size of the machinery allows significant savings in construction, installation and operation costs. The tendency to exploit economies of scale entails a continuous increase in the volume of production which, in turn, requires a constant expansion of the size of the market. However, if the market does not expand at the same rate as production increases, overproduction crises can occur. According to Marx
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#17327718796865332-419: The individual phases of the production process. If the inputs are indivisible and complementary, a small scale may be subject to idle times or to the underutilization of the productive capacity of some sub-processes. A higher production scale can make the different production capacities compatible. The reduction in machinery idle times is crucial in the case of a high cost of machinery. A larger scale allows for
5418-496: The individual services. Under the Goldwater–Nichols Act, military advice was centralized in the chairman of the Joint Chiefs of Staff as opposed to the service chiefs. The chairman was designated as the principal military adviser to the president of the United States , National Security Council and Secretary of Defense . The act also established the position of vice chairman of the Joint Chiefs of Staff and simplified
5504-504: The initial step of the currently ongoing Revolution in Military Affairs (RMA) with its concept of Network Centric Warfare (NCW). On October 24, 2002, Secretary of Defense Donald Rumsfeld ordered that the functional and regional commanders be referred to not as " CINCs " but as "combatant commanders" when applied to "unified" regional organizations (e.g., USCENTCOM), or "commander" when talking about "specified" units such as
5590-665: The integrated unified action plan, including the military, interagency organizations of the US Government such as USAID and the Department of State, and intelligence agencies. The restructuring afforded a combination of effort, integrated planning, shared procurement, and a reduction or elimination of inter-service rivalry. It also provided unity of command, conforming with leading military science . Individual services changed from relatively autonomous war-fighting entities into organizational and training units, responsible for acquisition, modernization, force-development, and readiness as
5676-424: The marginalist theory of price. Sraffa points out that, in the equilibrium theory of the individual industries, the presence of external economies cannot play an important role because this theory is based on marginal changes in the quantities produced. Sraffa concludes that, if the hypothesis of perfect competition is maintained, economies of scale should be excluded. He then suggests the possibility of abandoning
5762-411: The output market the long-run equilibrium will involve all firms operating at the minimum point of their long-run average cost curves (i.e., at the borderline between economies and diseconomies of scale). If, however, the firm is not a perfect competitor in the input markets, then the above conclusions are modified. For example, if there are increasing returns to scale in some range of output levels, but
5848-475: The output. If a mathematical function is used to represent the production function, and if that production function is homogeneous , returns to scale are represented by the degree of homogeneity of the function. Homogeneous production functions with constant returns to scale are first degree homogeneous, increasing returns to scale are represented by degrees of homogeneity greater than one, and decreasing returns to scale by degrees of homogeneity less than one. If
5934-405: The presence of significant economies of scale. This contradiction, between the empirical evidence and the logical incompatibility between economies of scale and competition, has been called the 'Cournot dilemma'. As Mario Morroni observes, Cournot's dilemma appears to be unsolvable if we only consider the effects of economies of scale on the dimension of scale. If, on the other hand, the analysis
6020-544: The president and the secretary of defense, and given the responsibility for training and equipping personnel for the unified combatant commands . Named after Senator Barry Goldwater ( R - Arizona ) and Representative William Flynt "Bill" Nichols ( D - Alabama ), the bill passed the House of Representatives , 383–27, and the Senate , 95–0. It was signed into law by President Reagan on October 1, 1986. Admiral William J. Crowe
6106-445: The president rejects a bill or resolution while the Congress is in session, a two-thirds vote of both houses of Congress is needed for reconsideration to be successful. Promulgation in the sense of publishing and proclaiming the law is accomplished by the president, or the relevant presiding officer in the case of an overridden veto, delivering the act to the archivist of the United States . The archivist provides for its publication as
6192-498: The president, one through the secretary of the Navy to naval forces, and the other through the secretary of war to land and air forces. In 1947, the military restructuring placed all military forces, including the newly independent Air Force , under a single civilian secretary of defense . However, the United States military was still organized along the lines of command that reported to their respective service chiefs ( Commandant of
6278-450: The price of inputs when the quantity purchased of inputs varies with changes in the scale of production. The literature assumed that due to the competitive nature of reverse auctions , and in order to compensate for lower prices and lower margins, suppliers seek higher volumes to maintain or increase the total revenue. Buyers, in turn, benefit from the lower transaction costs and economies of scale that result from larger volumes. In part as
6364-569: The production of a given plant. When a plant is used below its optimal production capacity , increases in its degree of utilization bring about decreases in the total average cost of production. Nicholas Georgescu-Roegen (1966) and Nicholas Kaldor (1972) both argue that these economies should not be treated as economies of scale. The simple meaning of economies of scale is doing things more efficiently with increasing size. Common sources of economies of scale are purchasing (bulk buying of materials through long-term contracts), managerial (increasing
6450-400: The reasons firms appear is to reduce transaction costs . A larger scale generally determines greater bargaining power over input prices and therefore benefits from pecuniary economies in terms of purchasing raw materials and intermediate goods compared to companies that make orders for smaller amounts. In this case, we speak of pecuniary economies, to highlight the fact that nothing changes from
6536-441: The same when purchasing the same product for both small and high volumes. Keeping competitive factors constant, increasing auction volume may further increase competition. The first systematic analysis of the advantages of the division of labour capable of generating economies of scale, both in a static and dynamic sense, was that contained in the famous First Book of Wealth of Nations (1776) by Adam Smith , generally considered
6622-426: The scale of production. When the size of the company and the division of labour increase, there are a number of advantages due to the possibility of making organizational management more effective and perfecting accounting and control techniques. Furthermore, the procedures and routines that turned out to be the best can be reproduced by managers at different times and places. Learning and growth economies are at
6708-565: The secretary of defense reported to the president of the United States who holds the position of Commander-in-Chief (CINC) of all U.S. Armed Forces . This system led to counter-productive inter-service rivalry. Peacetime activities (such as procurement and creation of doctrine , etc.) were tailored for each service in isolation. Additionally, wartime activities of each service were largely planned, executed, and evaluated independently. These practices resulted in division of effort and an inability to profit from economies of scale , and inhibited
6794-427: The size of the company and the market structure. It is also necessary to take into account the factors linked to the development of capabilities and the management of transaction costs. External economies of scale tend to be more prevalent than internal economies of scale. Through the external economies of scale, the entry of new firms benefits all existing competitors as it creates greater competition and also reduces
6880-446: The specialization of managers), financial (obtaining lower- interest charges when borrowing from banks and having access to a greater range of financial instruments), marketing (spreading the cost of advertising over a greater range of output in media markets ), and technological (taking advantage of returns to scale in the production function). Each of these factors reduces the long run average costs (LRAC) of production by shifting
6966-449: The strength of beams increases with the cube of the thickness. Drag loss of vehicles like aircraft or ships generally increases less than proportional with increasing cargo volume, although the physical details can be quite complicated. Therefore, making them larger usually results in less fuel consumption per ton of cargo at a given speed. Heat loss from industrial processes vary per unit of volume for pipes, tanks and other vessels in
7052-399: The tendency towards a monopoly inherent in economies of scale. In other words, the heterogeneity of the organizational forms and of the size of the companies operating in a sector of activity can be determined by factors regarding the quality of the products, the production flexibility, the contractual methods, the learning opportunities, the heterogeneity of preferences of customers who express
7138-488: The term "act of Congress", is a common, not a proper noun . The capitalization of the word "act" (especially when used standing alone to refer to an act mentioned earlier by its full name) is deprecated by some dictionaries and usage authorities. However, the Bluebook requires "Act" to be capitalized when referring to a specific legislative act. The United States Code capitalizes "act". The term "act of Congress"
7224-417: The variation in the relationship between inputs and output . This relationship is therefore expressed in "physical" terms. But when talking about economies of scale, the relation taken into consideration is that between the average production cost and the dimension of scale. Economies of scale therefore are affected by variations in input prices. If input prices remain the same as their quantities purchased by
7310-556: The variation or constancy of returns. In 1947, DuPont engineer Roger Williams, Jr. (1930-2005) published a rule of thumb that costs of chemical process are roughly proportional to the tonnage in power ~0.6 . In the following decades it became widely adopted other engineering industries and terrestrial mining, sometimes (e. g., in electrical power generation) with modified exponential scaling factors. It has been noted that in many industrial sectors there are numerous companies with different sizes and organizational structures, despite
7396-634: Was the first chairman to serve under this new legislation. The Goldwater–Nichols Act was an attempt to fix problems caused by inter-service rivalry , which had emerged during the Vietnam War , contributed to the catastrophic failure of the Iranian hostage rescue mission in 1980, and which were still evident in the invasion of Grenada in 1983. Such problems existed as well in World War II, during which two independent lines of command flowed from
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