Final answer:
The declining portion of a firm's long-run average cost curve indicates economies of scale, or increasing returns to size, which is true.
Step-by-step explanation:
The statement that the declining portion of a firm's long-run average cost function is indicative of increasing returns to size is True. This is because, during this phase of the cost curve, as production scale increases, the average costs of production decrease, which is characteristic of economies of scale.
When the firm continues to expand, ultimately a point is reached where the average costs stop decreasing and remain constant; this is known as constant returns to scale. If the firm grows even larger, it may experience diseconomies of scale, where the average costs begin to increase due to factors such as management inefficiencies and communication problems.
The shape of a long-run average cost curve (LRAC) that illustrates economies of scale, constant returns to scale, and diseconomies of scale typically looks like a 'U' or a 'bathtub.' Initially, the curve slopes downwards representing economies of scale, flattens out indicating constant returns to scale, and finally slopes upwards depicting diseconomies of scale.