5,000 alarm clocks at a cost of $4 per clock. Economies of scale exist when the larger scale of production leads to

lower average costs.

The average cost curve in Figure 7.9 may appear similar to the average cost curves we presented earlier in this

chapter, although it is downward-sloping rather than U-shaped. However, there is one major difference. The

economies of scale curve is a long-run average cost curve, because it allows all factors of production to change.

The short-run average cost curves we presented earlier in this chapter assumed the existence of fixed costs,

and only variable costs were allowed to change.

One prominent example of economies of scale occurs in the chemical industry. Chemical plants have many

pipes. The cost of the materials for producing a pipe is related to the circumference of the pipe and its length.

However, the cross-section area of the pipe determines the volume of chemicals that can flow through it. The
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