Economical size of industrial unit

In the business world we find units of different sizes in the same industry. In textile industry, there can be a spinning mill with 2,000 spindles, another with 10,000 spindles, and also a composite textile mill with spindles, looms and processing department. The investments, production (in units as well as in money value), number of workers employed etc., depends on the size of the unit. The capital investment, production, number of employees of a spinning mill with 10,000 spindles is bound to be more than those in a spinning mill with 2,000 spindles.

Thus size of the business unit refers to the scale of its operation. There can be the unit of large size, small size or a medium size, the classification depends on how we define the size. Similarly, relative ranking of the units will also be possible under the size consideration.

The profitability and efficiency of the business unit largely depends on its size. The success or failure of the business unit is mostly dependent on the size of the unit. Thus the decision about the size the size of the unit is basic and strategic one. The size may be kept large from the beginning or initially the unit may be started on a small size with a gradual increase in it in the course of the time.

Meaning of certain terms

While analyzing the problem of the size, it is necessary to define the terms plant, firm and industry clearly.

Plant: Plant refers to a place where goods and services are produced. In common terminology, it is referred to as a factory, mill or establishment. Thus a spinning mill manufacturing yarn or a sugar factory manufacturing sugar at the plant.

Firm: The term firm is used in a broader sense than a plant. It refers to a business unit or business undertaking which manages the plant. It owns the plants and manages their production and sales. A firm may own only one plant or more than one plant, manufacturing the same product or even different products.

The firm may be started with a single plant. It may own more plants in the same line of production (i.e. expansion) or in different line of production located at different places.

Industry: The industry is a wider term as it includes many firms. It refers to the collection of firms which are engaged in the same line of production; e.g. textile industry refers to the collection of those firms which own the plants engaged in the textile production.