Another explanation of size effect is addressed by economies of scale (Feldstein, 1983). With
economies of scale, the larger the firm (or those firms that increase their output), the lower its
average cost will be. Beyond the cost dimension, economies of scale can also be applied to resource
utilization to explain size effect on efficiency improvements (Conway, 1988). From this perspective,
larger organizations can afford greater specialization of labor, equipment, and facilities and delegate
these operational capacities to their fullest extent. In addition to the advantages from an increase in
size, Feldstein (1983) points out that as an organization grows in size, it will experience not only
the advantages from economies of scale but also the increasing management challenges due to a
more complex organizational structure. Taking into consideration these two points of view, for a
hospital, efficiency tends to increase with size if the advantages accruing from economies of scale
are greater than the proportion of time and effort required to coordinate and control work in the
larger hospital.