In the long run, average cost must be rising as the firm increases output as long as the.......... operates.

Option 1 -> Increasing Returns to Scale lead to declining average costs, not rising costs.

Option 2 -> Law of Variable Proportions is a short-run concept with fixed factors, not applicable in the long run.

Option 3 -> Decreasing Returns to Scale cause output to increase proportionately less than inputs, resulting in rising average costs.

Option 4 -> Constant Returns to Scale result in constant average costs, not rising costs.

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Hence, Decreasing Returns to Scale -> In the long run, all factors of production are variable. When a firm experiences decreasing returns to scale, a proportionate increase in all inputs leads to a less than proportionate increase in output. This means the cost per unit of output (average cost) rises as production expands. For example, if inputs double but output increases by less than double, the average cost must increase. This is the only scenario among the options where long-run average cost rises with increased output -> correct