Economies of Scale

Economies of scale means that as the quantity produced goes up, the cost per unit goes down. The curve is a long-run average cost curve: every input, including the size of the factory, can change along it. A small factory like S produces 1,000 alarm clocks at an average cost of $12; a medium factory like M produces 2,000 at $8; a large factory like L produces 5,000 at $4.

It looks like the average cost curves earlier in the chapter, but it slopes down rather than forming a U, and it is not tied to any one level of fixed cost. Turn on the movable factory to read the average cost at any other scale.