The passus (scale) coefficient in the pre-optimal production region

Summary

The pre-optimal production region includes output levels where the passus (scale) coefficient is greater than unity, and hence average cost is diminishing with increases in output. If the level of cost is reduced to zero as output is reduced to zero and the average cost curve is ‘U’ shaped, the passus coefficient first increases with increases in output, reaches its maximum point to the left of the minimum marginal cost point, and only then falls toward unity at the terminal point of the pre-optimal production region.