Final answer:
Option d is correct: In the long run, all inputs are variable, and average costs may decrease, remain constant, or increase depending on economies or diseconomies of scale. Firms aim for the lowest average cost by adjusting inputs and technology, affecting economic profit.
Step-by-step explanation:
The correct answer to the question regarding the nature of inputs and average costs in the long run is: d. all inputs are variable, and average costs may decrease, remain constant, or increase as the scale of production changes. In the long run, firms have the flexibility to adjust all of their inputs and production technology. As a result, all costs become variable costs. Firms will aim to minimize these costs by substituting more expensive inputs with less expensive ones, thereby seeking the lowest possible long-run average cost.
Additionally, the concept of economies of scale and diseconomies of scale apply in the long run. Economies of scale refer to the reduction of long-run average costs as the scale of production increases. Conversely, diseconomies of scale occur when long-run average costs increase as output increases. Average variable costs by themselves are U-shaped and must be considered in conjunction with fixed costs to determine total costs and overall profitability.
Firms are considered to be making an economic profit if their total revenues exceed their total costs, which include both explicit and implicit costs. Understanding the nature of costs in the long run is crucial for firms to make strategic decisions regarding production and technological investment.