LAC-U-shaped

LAC curve U-shaped



The LAC curve slopes downward as the scale of production is enlarged. It is due to the various economics of scale, e.g.

i) Larger scope of specialization of labour.
ii) Increasing use of specialized machinery
iii) Other technological improvements.

The LAC rises after a point because of the various diseconomies of scale, e.g.

i) Rising cost of the inputs.
ii) The difficulty of management etc.