A firm average cost decreases in the long run because?

A. increasing returns to scale
B. diminishing average returns
C. decreasing marginal returns
D. decreasing average fixed cost

Correct Answer: Option C

C. decreasing marginal returns

Explanation

In the long run, when all inputs under the control of the firm are variable, there is no fixed cost and thus no average fixed cost. Instead, the long-run average cost is affected by increasing and decreasing returns to scale, which translates into economies of scale and diseconomies of scale.