Economies of Size in Production Agriculture

Economies of size refer to the ability of a farm to lower costs of production by increasing production. Agriculture production displays an L-shaped average cost curve where costs are lower initially but reach a point where no further gains are achieved. Spreading fixed costs, bulk purchases, and marketing power are cited as reasons for economies of size. Labor-reducing technologies may be the primary reason. Most studies do not include the external costs from prophylactic antibiotic use, impact on rural communities, and environmental damage associated with large-scale production. These can contribute to the economies of size.