Final answer:
When the LRAC curve is falling, the firm is seeing economies of scale, meaning that as they produce more, the average cost per unit decreases. option a.
Step-by-step explanation:
Over the range of output where the Long-Run Average Cost (LRAC) curve is falling, the firm is experiencing economies of scale. As output increases, average costs are decreasing. This phenomenon occurs when, by increasing production, a firm can spread fixed costs over more units, leading to a reduction in the average cost per unit. Also, operational efficiencies and increased bargaining power can contribute to economies of scale. Conversely, when output increases but average costs do not change, this is known as constant returns to scale. Finally, if increasing output leads to higher average costs, the firm experiences diseconomies of scale, often due to management challenges or resource constraints.