Concept:In the long run, all inputs are variable, and average cost falls when output rises more than proportionally to the increase in inputs.
Explanation:Increasing returns to scale occur when a firm increases all inputs, such as labour and capital, by a given percentage and output increases by a larger percentage.
This makes production more efficient and lowers the cost per unit of output.
For example, doubling both labour and capital may more than double output, thereby reducing long-run average cost.
This situation is known as economies of scale.
Diminishing average returns and decreasing marginal returns are short-run concepts, while decreasing average fixed cost mainly applies in the short run.
Therefore, in the long run, a decrease in average cost is caused by increasing returns to scale.
Answer:A. increasing returns to scale.