An empirical investigation of returns to scale: The Welsh coal industry

This article attempts to study both returns to scale and optimal size of production. Specifically, the authors estimate a ray-homothetic production function which allows the returns to scale to vary with ouput size and input mix. The production model is estimated using data from the Welsh coal industry for the period 1961–1976. Findings showed that, first, the Welsh coal industry suffers from a level of production which is either too small or below its optimal level and, second, this discrepancy between actual and optimal production worsened over the period considered.