Question

What is the main reason for the U-shape of the long-run average cost (LAC) curve?

Options

• Law of demand and supply

• Economies and diseconomies of scale

• Fixed cost and variable cost

• Short-run diminishing returns

Answer 1

Economies and diseconomies of scale

Explanation: 

LAC falls first due to economies of scale and then rises due to diseconomies of scale, giving it a U-shape.