The shape of the long-run average cost curve is best explained by the
Answer Details
The shape of the long-run average cost curve is best explained by the law of returns to scale. The law of returns to scale refers to the relationship between inputs and outputs in the long run, where all inputs can be varied. The curve shows the average cost per unit of output as the scale of production increases. If the cost per unit decreases as the scale of production increases, the curve is said to have economies of scale and will have a downward slope. Conversely, if the cost per unit increases as the scale of production increases, the curve is said to have diseconomies of scale and will have an upward slope. If the cost per unit remains constant as the scale of production increases, the curve is said to have constant returns to scale and will be a horizontal line.