The analysis of overhead cost has as yet not found an adequate place in business cycle research, in spite of the fact that Professor J.M. Clark has opened the avenue twenty-eight years ago. This study makes a modest attempt to fill the gap by showing the relationship of the problem of overhead costs to fundamental issues of business cycle theory. While Professor Clark is interested primarily in the influence of demand upon expansion of capacities, the emphasis in this analysis is upon the impaceof production and particularly innovations upon the structure of overhead costs. The approach is theoretically not statistically, oriented. The increase in the relative share of overhead costs in total costs as well as their absolute growth has contributed greatly to the rigidity of the cost structure of modern industry and has increased the sensitivity of firms to fluctuations in sales upon which the utilization of capacity depends. This study attempts a systematic analysis of the effect of this situation. The analysis is carried out under a double aspect: with regard, first, to an individual firm; and second, to the economy as a whole. In such a way it might be shown that also in this restricted field of economic research the problems cannot be adequately stated, much less solved, without combining these two aspects.