Internal economies of scale and the six-tenths rule

The six-tenths rule quantifies the relationship between the relevant costs of a firm's decision to expand and the increased internal economies that result from that expansion.



1.  A small printing firm has technological costs of £48000 per annum, which give it a processing capability of 200 documents per week. The total monthly revenue the firm currently receives from the sale of these high value documents is £16000. The firm's owner draws an annual salary of £42000, and those of the four workers involved directly in the processing of documents amounts to a further £72000 per annum. Additionally a part-time administrator is employed at an annual cost of £12000. It is assumed that the firm works a five-day week and closes down over a period of four weeks during the year.

From the data above, estimate the:

i)  average unit cost of each document          
ii) profit made on each processed document    

Attached file(s):

Background information.doc  View File