Discussion
Statement I: Doubling a plant's capacity roughly doubles its capital cost.
Statement II: Cost scales with capacity raised to a power near 0.6.
In the light of the above statements, choose the correct answer.
Answer: C
Correct answer: Statement I is incorrect but Statement II is correct
Statement II gives the correct relation and refutes statement I. Because cost goes as \(Q^{0.6}\), doubling the capacity multiplies the cost by \(2^{0.6} = 1.52\) - about half again, not twice. The economy of scale arises because a vessel’s cost follows its surface while its capacity follows its volume.
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