pipes. Of course, economies of scale in a chemical plant are more complex than this simple calculation

suggests. However, the chemical engineers who design these plants have long used what they call the “six-

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7.5 • Costs in the Long Run 177

tenths rule,” a rule of thumb which holds that increasing the quantity produced in a chemical plant by a

certain percentage will increase total cost by only six-tenths as much.

Shapes of Long-Run Average Cost Curves

While in the short run firms are limited to operating on a single average cost curve (corresponding to the level

of fixed costs they have chosen), in the long run when all costs are variable, they can choose to operate on any

average cost curve. Thus, the long-run average cost (LRAC) curve is actually based on a group of short-run

average cost (SRAC) curves, each of which represents one specific level of fixed costs. More precisely, the
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