Why might a software company experience lower average costs as output expands?

• A. High upfront development (fixed) costs are spread over many users while the marginal cost of distributing additional copies is very low, plus network effects and learning lower average cost.
• B. Because marginal costs rise quickly with each additional user due to licensing and per-user fees, forcing average costs down.
• C. Because fixed costs increase with output, and increasing fixed costs by itself lowers average cost per unit.
• D. Because programmers face strong diminishing marginal returns that reduce average cost as more software is produced.

Answer: (A)