Concept:In the long run, all factors of production are variable, so a fall in average cost is linked to the benefits of producing on a larger scale.
Explanation:When a firm expands its scale of production in the long run, it can use more efficient methods, specialised labour, and better technology.
These improvements cause output to rise more than proportionately to the increase in all inputs.
This situation is known as increasing returns to scale, or economies of scale.
As a result, the total cost of production increases, but the cost per unit of output falls.
Therefore, the average cost decreases because the firm experiences increasing returns to scale, not because of diminishing or decreasing returns.
In the long run, there are no fixed factors, so decreasing average fixed cost is not the reason.
Answer:A. increasing returns to scale