A so-called "step eost" arises when some factor of production is acquired in speeific, integer units. To illustrate, it might be possible to le ase machine time at the rate of $5,000 per unit, where units are measured in thousands of hours. So any number of hours of machine time strictly above zero and below 1,000 will eost

$5,000; any number between 2,000 and strietly below 3,000 will eost $10,000, and so on. Plot the implied eost curve.

In such a situation we often hear someone say "If we expand output, our fixed eosts will inerease." Carefully analyze this statement, in economie terms and in accounting terms.

AppendixLO1