To round out this discussion of smaller memory machines, in the 1960s, even into early 1970s, core memory was the single most expensive component of IBM mainframe systems. So, the smaller shops could not afford that much memory, hence the need and continued demand for the small systems (DOS/360, DOS/VS for the smaller 370 models.)
Of course, the large shops who could afford the larger machines like a 360-65 could afford more core memory, so it became feasible to run OS/360 MVT ...
But the absolute limits on the amount of real storage were a real impediment to applications development -- you had to resort to using overlays or dividing your large jobs into multiple job steps etc., and often the by software had to be designed to use large "work files" to manipulate large amounts of data, in lieu of more available memory.
This was all greatly alleviated with the advent of virtual memory.
With the S/370, IBM transitioned from core memory (on the earliest 370 models) to semiconductor memory, and this helped to significantly reduce the cost per megabyte, over the next several years. For example, by about 1977 or 1978, my employer was able to acquire 4MB of add-on memory from MEMOREX, for the 158-3 for only ~$50,000. :-o
