Final answer:
The negatively sloped portion of the long-run average cost curve indicates economies of scale, while the horizontal portion represents constant returns to scale. The presence of indivisible inputs and replication can explain these phenomena.
Step-by-step explanation:
The long-run average cost curve shows the lowest possible average cost of production, allowing all the inputs to production to vary. The negatively sloped portion of the long-run average cost curve indicates economies of scale, meaning that as the firm increases its level of output, the average cost per unit decreases. This can be explained by the presence of indivisible inputs, where certain inputs such as machinery or technology cannot be easily divided or used in smaller quantities.
On the other hand, the horizontal portion of the long-run average cost curve represents constant returns to scale. This means that the firm can produce a range of different quantities at the lowest average cost. It can be understood in terms of replication, where a firm can replicate its production technology or processes to achieve the same average costs at different levels of output.