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Internal economies of scale & six-tenths rule

Please can you help me understand the following question for exam revision purposes.

Can you include the step by step workings so i can understand how it should be done, as well as the final solution.

Question: The six-tenths rule quantifies the relationship between the relevant costs of a firm's decision to expand and the increased internal economies that result from that expansion.

Given that C1 represents the relevant costs incurred in delivering an installed capacity of Y1 and C2 the new relevant costs incurred in delivering a new installed capacity of Y2, derive a mathematical relationship that relates n, the scaling factor to C1, C2, Y1 and Y2


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In general, costs do not rise in strict proportion to size. Nevertheless, the costs of a plant or equipment can be estimated when data are available for a similar project, but of different ...

Solution Summary

The solution clearly explains the concept of internal economies of scale and the six-tenth rule. The question is very well answered and all the steps in calculation are shown making it easier for any student to understand the response. Overall, an excellent response for students looking for a brief yet comprehensive answer.