Important Characteristics of LAC curve are listed below:
Characteristics
(i) The LAC curve is tangential to the various SAC curves:
It is drawn to cover them and is often known as Envelope curve as no point on SAC curve can ever be below the LAC curve.
Image Source : theluxuryreview.com
(ii) The LAC curve is U-shaped or like a dish:
This U-shape of the LAC curve implies lower and lower average costs in the beginning until the optimum scale of the enterprise is reached and successively higher average costs thereafter i.e. with plants larger than that of the optimum scale.
ADVERTISEMENTS:
The tendency for the long-run average costs to fall as the firm expands its operation scale is a reflection of cost economies available with the increase in size, while the ultimate size in the long-run curve is due largely to the eventual setting in of diseconomies of scale.
The SAC curve is also U-shaped but the difference is that LAC curve is fatter, that is U-shape of the LAC curve will be less pronounced. This is because in the long-run such economies are possible as cannot be had in the short run.
(iii) The long run average cost curve can never cut a short run curve though they are tangential to each other. This implies that for any given output, average cost cannot be higher in the long-run than in the short- run.
ADVERTISEMENTS:
This is because any adjustment that will reduce costs and which it is possible to make in the short-run can also be made in the long-run. On the other side, it is not always possible in the short-run to produce a given output in the cheapest possible way.
(iv) LAC curve will touch the optimum scale curve at the latter’s least cost point i.e. N.
(v) LAC curve will touch SAC curves lying to the left of the optimum scale curve at the left of their least cost points.
(vi) LAC curve will touch SAC curves laying at the right of the optimum scale curve at the right their least cost points.