Which of the following shapes are used to describe the long-run average cost curve?

A. S-shape

B. L-shape

C. V-shape

D. U-shape

E. W-shape

Choose the correct answer from the options given below:

The correct answer is B and D only.

Key Points

• The long-run average cost (LRAC) curve is a graphical representation in economics that illustrates the lowest average cost per unit of output attainable when all factors of production, including capital, are variable.
• In other words, it shows the relationship between the scale of production and the average cost per unit in the long run.

Important PointsThe long-run average cost curve (LAC) is a curve that shows the relationship between the average cost of producing a good or service and the quantity of output produced in the long run.

U-shape -

• The LAC curve is typically U-shaped, meaning that the average cost of production decreases as output increases to a certain point, and then begins to increase again.
• The LAC curve is U-shaped for a number of reasons. At low levels of output, firms may experience economies of scale.
• This means that the average cost of production decreases as output increases because the firm is able to spread its fixed costs over a larger number of units.
• However, at high levels of output, firms may experience diseconomies of scale.
• This means that the average cost of production increases as output increases because the firm becomes less efficient.
• 

L-shape -

• The L-shaped LAC curve is a special case of the U-shaped LAC curve.
• It occurs when the firm reaches the minimum efficient scale of production.
• At this point, the average cost of production is the lowest possible and the LAC curve becomes horizontal.