Economies of scale occur in the long run with variable factors

Steps:

• Define economies of scale as cost advantages from increasing production scale.
• Distinguish short run (some fixed factors) from long run (all factors variable).
• Identify that scale effects require adjusting all inputs proportionally.
• Match to option where all production factors can vary for cost per unit to fall.

Why D is correct:

• Economies of scale, per microeconomic theory, arise in the long run when all factors of production are variable, enabling output expansion without fixed input constraints (e.g., average cost curve declines as scale increases).

Why the others are wrong:

• A: Short run features fixed factors, preventing full scale adjustments and true economies.
• B: Transition to variable factors defines the long run but does not specify when economies occur—during variability.
• C: All factors fixed implies no production possible, as variability is essential for output changes.

Final answer: D