A conceptual model is developed for the purpose of providing a framework within which the existence of size economies can be tested. Based on the model the existing size economies literature is shown to be faulty on several counts. First, a simultaneous system of equations is shown to be necessary in order to test for size economies though most previous literature uses a single equation approach. Second, most previous studies have ignored capital costs which results in estimates of short run rather than long run cost curves. Also, the paper notes that care must be taken in application of size economies research to policy questions
