IN PARTICULAR, THIS STUDY ATTEMPTED TO STATISTICALLY DETERMINE HOW CHANGES IN THE PRODUCTION OF 'HOTEL SERVICES' AT SAN QUENTIN AND FOLSOM PRISONS AFFECTED TOTAL COSTS. DATA WERE ALSO EMPLOYED FROM 3 OTHER STATE PRISONS AND 128 CITY AND COUNTY JAILS. SPECIFICALLY, IT WAS FOUND THAT THE MARGINAL COST OF PROVIDING FOR EXTRA PRISONERS VARIED AMONG INSTITUTIONS, AND THAT THE MARGINAL COST IS ONLY A FRACTION OF COST PER INMATE AT INSTITUTIONS LIKE FOLSOM AND SAN QUENTIN. THE MORE GENERAL CONCLUSION OF THIS STUDY WAS THAT THE CONCEPTS DEVELOPED BY ECONOMISTS TO ANALYZE A PRIVATE FIRM'S BEHAVIOR, CAN BE USED TO ORGANIZE AND INTERPRET COST DATA IN THE CORRECTIONAL SYSTEM. THE APPENDIXES PROVIDE DETAILS ON BOTH THE DATA AND STATISTICAL ANALYSIS INVOLVED IN THIS STUDY. (AUTHOR ABSTRACT MODIFIED)