Why Is The Long Run Average Cost Curve L Shaped?


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Ellie Hoe answered
Long run average cost curve is L shaped in some industries because of the fact that they represent indefinite economies of scale derived from the optimal utilization of all the factors of production. In such conditions, it is quite possible that firms having L shaped long run average cost might be a bigger firm which has more chances to turn in to monopoly in the future because of more access to the resources and lesser chances of expected new entrants in the market. L-shaped curve shows that per unit cost for producing a product decline initially and then forms L-shaped which shows cost advantages for indefinite period.

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