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What is the utility of LAC Curve? |
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Answer» The utility of LAC curve lies in its ability to assist the firm in the determination of the best size of the plant to be adopted for producing the given output. For outputs less than the low-cost combination at the optimum scale, that is, when the firm is operating subject to increasing returns to scale, it is more economical to underuse a slightly larger plant operating at less than its minimum cost output than to overuse a smaller plant. Conversely, at outputs beyond the optimum level, that is, when the firm experiences decreasing returns to scale, it is more economical to overuse a slightly smaller plant than to underuse a slightly larger one. |
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