WELFARE ECONOMICS AND ECONOMIES OF SCALE*

For timeless economies where technology provides economies of scale, it is shown that, under a variety of circumstances, an allocation is optimal if and only if it is a free-entry monopsonistic equilibrium, in which producers take account of labour costs rising with the level of employment. The results refine Fujita's one-commodity theory, and extend it to many commodities and a heterogeneous population. Production takes place in towns. When transport costs for commodities are zero, one good is produced in each town. Land use and worker travel costs are allowed. For the equivalence theorem to hold, all production and property in a town should have a single owner. Models with transport costs are also discussed. For them, it is shown that in general there is no equilibrium.