Final answer:
The long-run average cost curve (LRAC) will be downward sloping for all levels of output when a firm's production technology exhibits increasing returns to scale, indicating economies of scale.
Step-by-step explanation:
If a firm's production technology exhibits increasing returns to scale for all levels of output, then the long-run average cost curve (LRAC) will be downward sloping for all levels of output. This downward slope represents economies of scale, as it shows that increasing the scale of production leads to lower average costs.
The correct answer to the question is D. downward sloping for all levels of output. This is because with increasing returns to scale, as production expands, the firm becomes more efficient, reducing the average cost of production for any given quantity. As the firm operates under these conditions in the long run, the LRAC does not exhibit a flat or upward-sloping segment but continues to decline.
If the LRAC had a flat segment at the bottom, it would be an indicator of constant returns to scale. However, in this case with increasing returns to scale, the LRAC does not level off but continues to show a decrease in average costs as output increases.