Engineers sometimes rely on the "0.6 rule," which states that the increase in cost is given by the increase in capacity raised to the 0.6 power; that is,
C2 = C1(X2/X1)0.6
where C1 and C2 are the costs of two pieces of equipment, and X1 and X2 are their respective capacities.
a. Does the 0.6 rule suggest economies of scale?
b. Some experts have stated that in the chemical and metal industries, the 0.6 rule can be applied to entire plants rather than individual pieces of equipment. If so, will the long- run average cost curve in these industries tend to be negatively sloped?
c. Can you think of a way to test whether this rule is correct?