Abstract
D IVERSIFICATION of U.S. manufacturing firms has been largely a postWorld War II phenomenon. It has been accomplished through internal growth and, more recently, through vertical and conglomerate mergers. Though product diversification is no longer unusual, there is relatively little quantitative information characterizing the importance and extent of diversification in the U.S. economy.' Traditional industrial organization theory focuses on the firm's production technology and cost structure as the important determinants of firm and industry structure. William Baumol, John Panzer, and Robert Willig merged the basic neoclassical cost concepts of economies of scale and scope, capacity, and natural monopoly to model multiproduct production.2 They contend that characteristics of the multiproduct cost function,
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