Advantages Of Cost Curve

Long run cost curves are U-shaped in light of the presence of economies and diseconomies of scale. Economies of scale are the cost advantages that a firm, or a business when all is said in done, acquires by extending production. At the end of the day, they are spoken to by the diminishment in unit costs over the long run as the extent of the firm – the scale – increases. Diseconomies of scale are the inverse: long-run average costs will in the end start to rise when the measure of the firm turns out to be too much expansive. The most evident reason is that as organizations increment in size they turn out to be harder to control and co-ordinate. In presence of economies of scale before a threshold level of production, and diseconomies of scale

At a substantial size of production, the managerial cost per unit of output may rise, however the tech­nical or production economies more than balance the administrative diseconomies so that the aggregate long-run normal expense does not rise or may even fall consistently, however at a little rate. Therefore the em­pirical proof accumulated by business analysts lately does not demonstrate U-shaped long-run average cost curve. As per the conventional theory, the long-run average cost curve is likewise "U" shaped like the short run average cost curve. In any case, a few economists have found from observational study that the LAC bend is L shaped as opposed to being "U" shaped .The LAC bends first fall quickly in the first place. However, after a point it turns out to be completely level or may inclines descending gradually. Such as L shaped LAC bend is appeared in figure.

As indicated by the vast majority of the exact studies there is expanding comes back to scale in lower level of generation. Yet, when yield builds, the economies of scale decrease and the comprise comes back to scale works in larger amount of generation. This infers as the yield increment, the LAC curve slopes downwards at the reducing rate lastly gets to be flat. The operation of diminishing comes back to scale or yield of normal cost bend is once in a while