In the bottom panels of figures 7-2 and 7-3, the LAC curves have been drawn as U – shaped. This based on the assumption that economies of scale prevail at small levels of output and diseconomies of scale prevail at larger of output. As pointed out Section 6-6, ‘economies of scale’ refers to the situation in which output grows proportionately faster than input. For example, output more than doubles of input prices remaining constant, this leads to lower costs per unit. Thus, increasing returns of scale are reflected in a declining LAC curve. On the other hand, decreasing returns to scale refers to the situation where output grows at a proportionately slower rate than use of inputs. With input prices constant, this is rising. The lowest point on the LAC curve occurs at the output level at which the forces for increasing returns to scale are just balanced by the forces for decreasing returns to scale.