Final answer:
A firm's long-run average total costs may decline due to economies of scale, where increased output leads to lower unit costs. However, if a firm becomes too large, it can encounter diseconomies of scale, resulting in rising average costs.
Step-by-step explanation:
A firm's long-run average total costs may decline over a wide range of output due to economies of scale. This concept refers to the situation where, as the quantity of output increases, the cost per unit decreases. This cost efficiency is the basis for large retail and wholesale operations such as Costco or Walmart, where a larger scale of operation can lead to lower average costs when compared to smaller operations.
However, the opposite effect, known as diseconomies of scale, occurs when a firm grows too large and average costs begin to rise. This usually happens due to increased complexity in management and communication within the larger scale operation. It's important for firms to find a balance between the benefits of economies of scale and the risks of diseconomies of scale.