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The three phases of the LAC - Beyond this point between...

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The three phases of the LAC mark variations in the scale economies. Initially between the N1N2 points on LAC and for output levels Q1Q2 we find the falling phase of LAC. The cost decreases and the returns increase. This is the phase of Economies or increasing returns . Then at point L2 for output level Q2 LAC is almost constant. Therefore cost is constant and returns are also constant. This is the Stage of Optimum Utilization of Scale Advantages
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Unformatted text preview: . Beyond this point between N2N3 we notice LAC rising upwards. The cost now increases and returns decreases. This is the phase of diseconomies of the scale . Under these long run conditions no further output can be advantageously produced beyond Q2. The economies of scale are at the disposal of a firm only in the long run when fixed factors become variable and replaceable....
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