This paper develops the theory of a firm that has the option of starting and stopping the production process. Intermittent production allows the firm to operate at the cost-minimizing rate regardless of demand conditions. Under certain circumstances costs will be lower and profits higher than if the firm produced continuously. The idea is this: The firm produces at the minimum average cost rate for some period of time during which production exceeds demand and inventories accumulate, then the firm shuts down and sells off its stocks. What we do in this paper is detail the conditions that make this strategy profit maximizing. In some production situations rate cannot be altered easily. Examples include pipelines, assembly lines, airplanes, and trucks. Driving these machines at rates different from the engineering efficient rate can impose large costs on the firm. However, these costs can be avoided by intermittent production. As an example, transportation firms adjust to slack demand by stopping their vehicles rather than slowing them. This paper develops the theory of a firm that has the option of starting and stopping the production process. Intermittent production allows the firm to operate at the cost-minimizing rate regardless of demand conditions. Transactions costs associated with intermittent production induce the firm to diversify its product line. Moreover, the theory shows that if economies of scale exist it is because of these costs. This implies that economies of scale are an economic not a technological phenomenon.