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Economies of scale and the form of the production function
BOOK
WILSON, FRANK C. (1971). Industrial Cost Controls. Englewood Cliffs, N.J. and London: PrenticeHall. 208 pp. $20.00. The type used and arrangement of the text makes this book pleasant and easy to read. The book is nicely bound in strong board covers with a durable leatherette finish. However the reviewer felt that the price was rather too high. The Author has adopted a novel approach to the treatment of financial and cost accounting matters. The basic aim of the book is to lead the reader through a logical sequence of events from the development of a market forecast through the intricacies of developing standard material, labour and overhead costs, treating such topics as wastage and defective workmanship by the way to arrive at standard manufacturing, distribution and administrative costs and thus to pricing strategies and a management control system. The underlying idea is good but inevitably has its disadvantages compared with more traditional approaches. The main disadvantage is that a necessary part of the development requires that the Author adopts a hypothetical business in order to illustrate the development of his scheme, a firm manufacturing carpets. The need to use such an illustrative example results in restricting the Author to consideration of the problems of such a business. Some passing references, however, are made to poultry preparation, the chemical industry and engineering. There are many important problems peculiar to costing in some industries, such as the treatment of by-products in the chemical and related coal tar and oil refining industries, which cannot be treated in a work of this kind without departing from the basic plan of the book. With this reservation in mind it must be stated that the Author achieves his aim. In contrast to the very detailed development of standard costing methods and pricing strategies for the carpet industry in chapters three to ten, the treatment of market forecasting in chapter one is superficial. This material is quite insufficient to enable the reader to develop market forecasts for himself for a currently marketed product, and certainly not for an entirely new product. In this respect the claims of the Author for “the benefits offered by this book” are not likely to be realized. 372
REVIEWS
Reference is made in the text to techniques such as linear programming as an aid to developing a product mix to maximise profitability, or to solve the firm’s distribution problems, method study as a means of establishing standard labour costs, and also to standard texts on cost accountancy but nowhere does the Author provide references to enable the interested reader to take his study of the subject further. For the reader who is seeking a source of references to other works this book is a non-starter, there being no references of any kind. As may be expected in an American book certain terms are used which, if unfamiliar to the reader, may cause him some trouble. However in most cases there is some amplification of the term or the context will allow a reasonably well-informed reader to deduce what is meant. The main body of the text is well written and adequately supported with worked examples. Most of the situations giving rise to variances in standard cost are treated in a realistic and practical manner. The practice of differentiating important principles or dicta by printing them in italics seems to the reviewer to be useful. The illustration of the text with examples of a computer print-out and references to the use of computers gives the false impression that consideration should be given to the use of computers by small firms when it is probable that this would be justified only if the work involved were much more voluminous. This book should prove a useful addition to the manager’s bookshelf. P. MARSDEN GRILICHES, Z. and RINGSTAD, V. (1971). Economies of Scale and the Form of the Production Function. (Contributions to Economic Analysis Series, Vol. 72). Amsterdam: North-Holland. 204 pp., 68 tables, 2 illus. &5. This book, as its subtitle, “An Econometric Study of Norwegian Manufacturing Establishment Data”, indicates, is a comprehensive account of econometric work done by Griliches and Ringstad on the wealth of data in the 1963 Norwegian Census of Manufacturing Establishments. Assuming a basic knowledge of the various forms of production function-in particular, the CobbInd Mark. Manage.,
3 (1972)
Douglas and Constant Elasticity of Substitutionand of their properties, the authors seek to estimate the parameter values and their robustness under the different forms. This study differs from others in the same field in that it takes its data from the plant level rather than the aggregated data used in time-series analyses. The disadvantages of this approach-principally that, with data for only the one year, any consideration of embodiment effects and technical change in general is precluded-are balanced by the fact that the investigator is offered data from over 20,000 separate establishments in nearly 100 industrial groupings. Read purely for its results, the book offers small return on the effort. No great discoveries are made and the positive findings are more of the “not disproven” kind. However, despite (or, perhaps, because of) this, it is to be recommended, for it becomes rather an essay in the application of a considerable segment of production function and econometric theory and deserves its place as a “Contribution to Economic Analysis” for demonstrating the feasibility of a micro, cross-section approach to empirical work on production functions, for the thoroughness of the theoretical and statistical introduction and for the authors’ disarming willingness to point out and discuss the shortcomings of their particular approach to the subject. M. W. DREW ADAMS, JAMES R. (1971). MediaPlanning.
Business
London:
Books Ltd. f4.50.
For those of us concerned with increasing the effectiveness of advertising, a book on media planning is always of interest. When it is sponsored by the Institute of Practitioners in Advertising and written by a top professional like Jim Adams of BBDO, it is of even greater interest. I really enjoyed the book-it is very easy to read, with one or two touches of wry humour. It is totally non-pompous, well planned, and to me, quite horrifying. Horrifying in what it doesn’t say rather than what it does say. There is unfortunately not one single word on international media planning, and the few pages on trade and technical campaigns (though why trade and technical should be lumped together I’ll never Ind. Mark.
Manage.,
3
(I 972)
know) are derisory. Much better not to have said anything at all than treat such an important subject in such a facile way. The book is written for those 20% of advertisers and their agencies who place 80% of the media turnover in the United Kingdom. For the other 80% of advertisers and their agencies who handle the other 20% I am afraid the book is less useful to them than the Nekclspaper Press Directory or British Rate and Data.
Over &I ,OOO,OOO a year is spent on media research in the United Kingdom, and yet, as the book says, “one may not know in detail how advertising works in terms of the precise mechanism operating in the minds of the consumers”. When one considers that the difference in effectiveness between a “good” advertisement and a “poor” advertisement or TV commercial in terms of simple reading and noting checks can be as great as 3/400%, the media planners’ concern over fractions of a percentage in coverage, strikes one as being practically futile. Obviously if an advertiser is spending a million pounds on a TV campaign, if the media planner can increase the coverage effectiveness by just one per cent, the advertiser’s appropriation is given a &10,000 boost. But if the Creative Department produce a commercial which is so clever that the bulk of the viewers cannot understand it or is so dull that few people notice it, then the small percentage of increased effectiveness on the part of the media planner is swamped by the huge ineffectiveness of the Creative Department. Unfortunately, for all its programming the computer still cannot compare the effects of a mixed appropriation. The computer cannot differentiate between outdoor, T.V., the Press or the Salesman as a medium of communication, and according to this book neither can the media planner. Jim Adams is totally honest in his book and does not hide these difficulties. He accepts that, with all his knowledge and skill, the media planner is helpless if at the moment the brand new campaign breaks, a competitor reduces his price, which after all is a very positive method of communication. So for those 20% of large advertisers wishing to spend their appropriation in the U.K., this book is written. From resource allocation, cost effectiveness, coverage, frequency distribution and test areas, through to media models, response functions and feedback experiments, this is a painstaking textbook 373
WILSON, FRANK C. (1971). Industrial Cost Controls. Englewood Cliffs, N.J. and London: PrenticeHall. 208 pp. $20.00. The type used and arrangement of the text makes this book pleasant and easy to read. The book is nicely bound in strong board covers with a durable leatherette finish. However the reviewer felt that the price was rather too high. The Author has adopted a novel approach to the treatment of financial and cost accounting matters. The basic aim of the book is to lead the reader through a logical sequence of events from the development of a market forecast through the intricacies of developing standard material, labour and overhead costs, treating such topics as wastage and defective workmanship by the way to arrive at standard manufacturing, distribution and administrative costs and thus to pricing strategies and a management control system. The underlying idea is good but inevitably has its disadvantages compared with more traditional approaches. The main disadvantage is that a necessary part of the development requires that the Author adopts a hypothetical business in order to illustrate the development of his scheme, a firm manufacturing carpets. The need to use such an illustrative example results in restricting the Author to consideration of the problems of such a business. Some passing references, however, are made to poultry preparation, the chemical industry and engineering. There are many important problems peculiar to costing in some industries, such as the treatment of by-products in the chemical and related coal tar and oil refining industries, which cannot be treated in a work of this kind without departing from the basic plan of the book. With this reservation in mind it must be stated that the Author achieves his aim. In contrast to the very detailed development of standard costing methods and pricing strategies for the carpet industry in chapters three to ten, the treatment of market forecasting in chapter one is superficial. This material is quite insufficient to enable the reader to develop market forecasts for himself for a currently marketed product, and certainly not for an entirely new product. In this respect the claims of the Author for “the benefits offered by this book” are not likely to be realized. 372
REVIEWS
Reference is made in the text to techniques such as linear programming as an aid to developing a product mix to maximise profitability, or to solve the firm’s distribution problems, method study as a means of establishing standard labour costs, and also to standard texts on cost accountancy but nowhere does the Author provide references to enable the interested reader to take his study of the subject further. For the reader who is seeking a source of references to other works this book is a non-starter, there being no references of any kind. As may be expected in an American book certain terms are used which, if unfamiliar to the reader, may cause him some trouble. However in most cases there is some amplification of the term or the context will allow a reasonably well-informed reader to deduce what is meant. The main body of the text is well written and adequately supported with worked examples. Most of the situations giving rise to variances in standard cost are treated in a realistic and practical manner. The practice of differentiating important principles or dicta by printing them in italics seems to the reviewer to be useful. The illustration of the text with examples of a computer print-out and references to the use of computers gives the false impression that consideration should be given to the use of computers by small firms when it is probable that this would be justified only if the work involved were much more voluminous. This book should prove a useful addition to the manager’s bookshelf. P. MARSDEN GRILICHES, Z. and RINGSTAD, V. (1971). Economies of Scale and the Form of the Production Function. (Contributions to Economic Analysis Series, Vol. 72). Amsterdam: North-Holland. 204 pp., 68 tables, 2 illus. &5. This book, as its subtitle, “An Econometric Study of Norwegian Manufacturing Establishment Data”, indicates, is a comprehensive account of econometric work done by Griliches and Ringstad on the wealth of data in the 1963 Norwegian Census of Manufacturing Establishments. Assuming a basic knowledge of the various forms of production function-in particular, the CobbInd Mark. Manage.,
3 (1972)
Douglas and Constant Elasticity of Substitutionand of their properties, the authors seek to estimate the parameter values and their robustness under the different forms. This study differs from others in the same field in that it takes its data from the plant level rather than the aggregated data used in time-series analyses. The disadvantages of this approach-principally that, with data for only the one year, any consideration of embodiment effects and technical change in general is precluded-are balanced by the fact that the investigator is offered data from over 20,000 separate establishments in nearly 100 industrial groupings. Read purely for its results, the book offers small return on the effort. No great discoveries are made and the positive findings are more of the “not disproven” kind. However, despite (or, perhaps, because of) this, it is to be recommended, for it becomes rather an essay in the application of a considerable segment of production function and econometric theory and deserves its place as a “Contribution to Economic Analysis” for demonstrating the feasibility of a micro, cross-section approach to empirical work on production functions, for the thoroughness of the theoretical and statistical introduction and for the authors’ disarming willingness to point out and discuss the shortcomings of their particular approach to the subject. M. W. DREW ADAMS, JAMES R. (1971). MediaPlanning.
Business
London:
Books Ltd. f4.50.
For those of us concerned with increasing the effectiveness of advertising, a book on media planning is always of interest. When it is sponsored by the Institute of Practitioners in Advertising and written by a top professional like Jim Adams of BBDO, it is of even greater interest. I really enjoyed the book-it is very easy to read, with one or two touches of wry humour. It is totally non-pompous, well planned, and to me, quite horrifying. Horrifying in what it doesn’t say rather than what it does say. There is unfortunately not one single word on international media planning, and the few pages on trade and technical campaigns (though why trade and technical should be lumped together I’ll never Ind. Mark.
Manage.,
3
(I 972)
know) are derisory. Much better not to have said anything at all than treat such an important subject in such a facile way. The book is written for those 20% of advertisers and their agencies who place 80% of the media turnover in the United Kingdom. For the other 80% of advertisers and their agencies who handle the other 20% I am afraid the book is less useful to them than the Nekclspaper Press Directory or British Rate and Data.
Over &I ,OOO,OOO a year is spent on media research in the United Kingdom, and yet, as the book says, “one may not know in detail how advertising works in terms of the precise mechanism operating in the minds of the consumers”. When one considers that the difference in effectiveness between a “good” advertisement and a “poor” advertisement or TV commercial in terms of simple reading and noting checks can be as great as 3/400%, the media planners’ concern over fractions of a percentage in coverage, strikes one as being practically futile. Obviously if an advertiser is spending a million pounds on a TV campaign, if the media planner can increase the coverage effectiveness by just one per cent, the advertiser’s appropriation is given a &10,000 boost. But if the Creative Department produce a commercial which is so clever that the bulk of the viewers cannot understand it or is so dull that few people notice it, then the small percentage of increased effectiveness on the part of the media planner is swamped by the huge ineffectiveness of the Creative Department. Unfortunately, for all its programming the computer still cannot compare the effects of a mixed appropriation. The computer cannot differentiate between outdoor, T.V., the Press or the Salesman as a medium of communication, and according to this book neither can the media planner. Jim Adams is totally honest in his book and does not hide these difficulties. He accepts that, with all his knowledge and skill, the media planner is helpless if at the moment the brand new campaign breaks, a competitor reduces his price, which after all is a very positive method of communication. So for those 20% of large advertisers wishing to spend their appropriation in the U.K., this book is written. From resource allocation, cost effectiveness, coverage, frequency distribution and test areas, through to media models, response functions and feedback experiments, this is a painstaking textbook 373