Important Background information:
The most well known kind of technical (internal) economy of scale arises because the capacity of a small set of technical units frequently rises in greater proportion than their cost as the set of technical units becomes larger. This technological relationship is of prime importance and is known as the six-tenths rule.
The “six-tenths rule” stated mathematically is:
C2 = C1 [Y2/Y1]0.6
Where:
C1 is the total cost of a small set of technical units
C2 is the total cost of a larger set of technical units
Y1 is the capacity of a small set of technical units
Y2 is the capacity of a large set of technical units
In the six-tenths rule a technical unit is the unit cost of say:
i) A software package
ii) A personal computer
iii) A microprocessor
iv) An oil tanker
v) An EPOS