As long as decreasing returns to scale operates, as the firm increases output, the average cost must be ................

Option 1 -> Under decreasing returns to scale, doubling inputs leads to less than double the output, causing average cost to rise.

Option 2 -> Falling average cost occurs with increasing returns to scale, not decreasing returns.

Option 3 -> Constant average cost occurs with constant returns to scale, not decreasing returns.

Option 4 -> Average cost cannot be equal to output as they are measured in different units.

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Hence, Option 1: Rising -> When decreasing returns to scale operate, proportional increases in all inputs result in less than proportional increases in output. For example, if all inputs are doubled, output increases by less than double. This means that to achieve a given increase in output, the firm must increase inputs by a larger proportion, leading to higher total costs per unit of output. Therefore, average cost (total cost divided by output) must be rising as the firm expands production under decreasing returns to scale. -> correct