Returns to Scale in Carpet Industry

*  The carpet industry has grown from the small industry to large industry with some large firms.

*  Question

- Can the growth be illustrated by the presence of economies to scale?

*  Are there economies of scale?

- Costs (or percent of cost)

• Capital - 77 percent
• Labor - 23percent

*  Large Manufacturers

- Increased in machinery and labor

- Doubling inputs has doubled output

- Economies of scale are there for large producers

*  Small Manufacturers

- Small increases in scale have no impact on output

- Proportional increases in inputs proportionally increase output
- Constant returns to scale for the small producers