Normally the
long-run average cost curve (LAC) is U-shaped but the empirical study
has found that LAC is L-shaped. Technological progress along with sustainable
production practice enables the firm to maintain the cost of production at a
minimum level in the long run. This makes the LAC curve first to fall and then
remain flat which makes it L-shaped. When output increases, LAC first
diminishes at a faster rate and become flat as the output reaches its optimum
level.
Following are the reasons
that justify long-run average cost curves are L-shaped instead of U-shaped:-
1. Specialization:
Initially workers take
comparatively longer time to perform a given task but their speed increases as
they are involve in the same job again and again because of the specialization.
2. Learning by Doing:
With the continuous
involvement of the producer of the entrepreneur in the production, his
efficiency goes on increasing i.e. his bargaining capacity, coordination etc
improve and hence cost of production goes on declining.
3. Improvement in Technology:
With the passage of
time, technology goes on improving which helps to reduce the cost of production
sharply in the beginning and after reaching certain level, the rate of decrease
in cost is insignificant.
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