Concept:In the long run, every production factor can be varied, so returns to scale replace diminishing returns.
Explanation:In the short run, at least one factor is fixed, so diminishing returns eventually applies.
In the long run, however, all inputs can be increased.
When a firm increases all its inputs, output may grow more than proportionately.
This is known as increasing returns to scale.
It results from specialisation, division of labour, and more efficient large-scale production.
Therefore, the firm can operate at a higher output with a lower cost per unit.
Answer:B. Increasing returns to scale.