Sea lions off the Washington coast eat steelhead and other fish, depleting some species threatened with extinction and decreasing the harvest of the commercial fishing industry. Rick Funk is a plastics manufacturer who has offered to build a life-sized fiberglass killer whale, mount it on a rail like a roller coaster, and send the whale diving through the water to scare off the sea lions, whales natural prey. According to Funk, it would cost about $16,000 to make the first whale, including $11,000 for the mold and $5,000 for labor and materials. Once the mold is made, each additional whale would cost an additional $5,000. In other words, the cost of producing the first fake killer whale is more than three times the cost of producing the second. In terms of total cost, producing two whales would cost a total of $21,000, while three whales would cost a total of $26,000, and so on. This little story illustrates the effects of indivisible inputs on the firms cost curves.
The mold is an indivisible input, because it cannot be scaled down and still produces whales. If Funk wants to cut his production from two whales per month down to one, he still needs the mold; he cannot simply produce half as many whales with half a mold or a mold that is half the size. The cost of producing the first whale, $16,000, includes the cost of the mold, the indivisible input. Once the firm has the mold, the marginal cost for each whale is only $5,000, so the average cost per whale decreases as the number of whales increases.