Shape of LAC curve:Theoretical reasons

According to traditional theory the long run average cost curve (LAC) is also 'U' shaped.The operation of the laws of returns to scale is its main reason.In the beginning,there is the operation of increasing returns to scale.After the cost becomes minimum,there is the operation of decreasing returns to scale.Due too economics of scale and dis economies of scale,first the average cost falls and them rises.

Economies of scale :There is economies of scale when output in increased.The causes of economies of scale are :

1. Specialization :The specialization in the use of labour brings economies of scale.More the output,more the specialization of labour.This increases efficiency of labour.The labour productivity is higher i n large firms.This reduces unit cost of production in higher level of output.
2. Technological factors :The economies of scale also occurs due to technological factors.In large scale production highly specialized machinery and equipments can be used.The productivity of equipments rise rapidly more than cost.Due to this average cost decreases at higher level of output.According to Austin Robinson,the big machinery have the quality of integration of processes,the use of which brings economies of scale.The big automatics transfer or numerically controlled machinery can operate consecutive processes as well.From this there is saving in labour and time required in installing each plant.
3. Quantity discount :The existence of quantity discount also brings economies of scale.The quantity discount is available when raw materials and other factors it will be purchased in large quantity.The large firms can easily enter into capital and time market.They can get credit at lower rate of interest.This reduces the cost of capital.
4. Invisibilities :There is economics of scale due to fact that some factors are indivisible even in the long run.Due to indivisibility,the cost decrease until it reduces the full capacity.For example,management is indivisible even in the long run.In also proprietorship,he is fully indivisible.Due to this there is difficulty in management after a point.Even if all factors are divisible,there is economies of scale when the output is increased due to factors like division of labour.Due to this the per unit cost is lower in the long run.