Question- What kind of relationship would you postulate between
short-run and long-run average cost curves when these are not Ushaped
as suggested by the modern theories?
Answer:
Of late it is observed from certain empirical evidence that the LAC curves are more
L-shaped rather than U-shaped. In the event where we assume that there is no
technological progress, the LAC is U-shaped but in the context of modern times
where technological revolution is inherent, the empirical studies have shown
that there is greater likelihood of prevalence of LAC to be L-shaped rather than Ushaped.
The LAC is characterized by a rapid downward slope in the early part of the
curve, whereas the curve, may remain flat or slope gently downwards in later
stages.