THE STUDY APPROACH INVOLVED (1) ADOPTING FUNCTIONAL PERFORMANCE SPECIFICATIONS AS IN INSTITUTIONAL DESIGNS ALREADY APPROVED BY THE CORRECTIONAL SERVICE, (2) DEVELOPING CONCEPTUAL MODELS FOR THE TWO SECURITY CLASSIFICATIONS AT THREE INMATE CAPACITY LEVELS, (3) COMPUTING THE COSTS ASSOCIATED WITH EACH MODEL, AND (4) COMPARING THE COSTS OF THE DIFFERENT SCALES OF OPERATION. THE MODELS WERE AS FOLLOWS: MAXIMUM SECURITY WITH INMATE CAPACITIES OF 162 (SMALL), 216 (MEDIUM), AND 428 (LARGE); AND MEDIUM SECURITY WITH INMATE CAPACITIES OF 168 (SMALL), 252 (MEDIUM), AND 420 (LARGE). CONSTANT AVAILABILITY OF INSTITUTIONAL PROGRAMS AND SERVICE LEVELS WERE MAINTAINED TO LIMIT THE ANALYSIS TO THE COST EFFECT OF SIZE. THE COST ANALYSIS WAS BASED ON A LIFE CYCLE OF 30 YEARS, AND ALL COSTS, INCLUDING INITIAL CAPITAL COSTS OF CONSTRUCTION AND EQUIPMENT, WERE COMPUTED ON A PER INMATE/PER YEAR BASIS. RESULTS SHOW THAT THE TOTAL ANNUAL COST INCREASE BETWEEN THE LARGE AND SMALL SCALE MODELS FOR MAXIMUM SECURITY INMATES WAS ABOUT 60 PERCENT; BETWEEN THE LARGE AND MEDIUM SCALE MODELS IT WAS 40 PERCENT. FOR MEDIUM SECURITY, THE COST INCREASES WERE ABOUT 40 PERCENT AND 20 PERCENT, RESPECTIVELY. ALSO, AT A GIVEN SCALE OF OPERATION, IT IS FROM 10 TO 20 PERCENT CHEAPER TO MAINTAIN AN INMATE IN A MEDIUM SECURITY INSTITUTION THAN IN A MAXIMUM SECURITY INSTITUTION. THE RESULTS ARE BASED ON THE MODELS OPERATING AT FULL CAPACITY; ECONOMIES OF SCALE APPEAR TO LEVEL OFF IN THE 400 TO 500 CAPACITY RANGE. RECOMMENDATIONS FOR MINIMIZING COSTS INCLUDE (1) DESIGNING FUTURE INSTITUTIONS TO ACCOMMODATE 400 TO 500 INMATES, AND (2) PURSUING POLICIES THAT ALLOW THE INCARCERATION OF INMATES IN MEDIUM RATHER THAN IN MAXIMUM SECURITY INSTITUTIONS WHENEVER POSSIBLE. REFERENCES, CHARTS, TABLES, GRAPHS, AND APPENDICES WITH DETAILED INFORMATION ON THE CALCULATIONS ARE INCLUDED. (AUTHOR ABSTRACT MODIFIED).