Concept:Internal economies of scale reduce the firm's average cost of production as output expands.
Explanation:Internal economies arise from the growth of the firm itself.
They include better technology, managerial specialisation, cheaper finance, and bulk buying advantages.
As the firm produces more, these benefits lower the cost of producing each unit.
Thus, the average cost of production decreases as output increases.
Option A is wrong because while total cost may increase, the average cost falls.
Option B is wrong because average fixed cost falls steadily as output rises.
Option D is wrong because internal economies of scale do not cause average revenue and marginal revenue to decrease.
Therefore, the correct option directly links higher output with lower average cost.
Answer:C. average cost of production decreases as output increases