I'll reply to your points one by one, and link to these replies from the main post.

On your point about short and long run and fixed versus variable costs.

As you point out, in the short run, producers cannot immediately alter their fixed cost inputs e.g. new factories (r&d is a subelty different in the way it reduces costs which I'll return to), but in the long run they can - all costs are variable in the long run. So, if there is an increase in demand of good A, and production of good A is characterised by constant- or increasing-returns to scale or economies of scale (these concepts are different with the same result, one referring to a fixed proportion of inputs and the other to varying proportion of inputs) over time we end up with an increase in quantity produced of A and a decrease in the price of A. But there need not be a downward sloping supply curve. In the case of constant- or increasing-returns to scale you just make more A because more A is demanded. In the case of economies of scale you just select from an envelop of possible short run average cost curves along the long run cost curve that meets the quantity demanded and maximises profit.

Thanks for that observation. I now realize that I wasn't clearly distinguishing between two related but distinct ideas:

• Even in the short run, a huge proportion of fixed costs means that the average cost per widget can go down as production increases for wide variation in the initial quantity of production. This could happen even though the marginal cost goes up, because the fixed costs still explain the bulk of production cost. The short-run supply curve could still be upward-sloping, but the short-run average total cost curve would be downward-sloping for quite a while (this is the average versus marginal distinction).
• The long-run supply curve is selected as an envelope of short-run supply curves, where different short-run supply curves consider different production scenarios. The reason why we can consider multiple short-run supply curves is that we have freedom to vary the "fixed" costs. Whether the long-run supply curve is upward-sloping or downward-sloping will depend on whether things become cheaper per unit when we spend more.

I do see now that the ideas are conceptually distinct. They are related in the following very trivial sense: if fixed costs contributed nothing at all to production, then the short run and long run behavior wouldn't differ. If, however, fixed costs do contribute something, then while we can say that the long-run supply curve is not as upward-sloping as the short-run supply curve, we can't categorically say that it will be downward-sloping. It could be that to double the production, the best strategy is to double fixed and variable costs, so that the long-run supply curve would just be flat (regardless of whether fixed or variable costs dominate).

I guess what I was additionally (implicitly) assuming is not just that the fixed costs dominate production, but that the fixed costs themselves are subject to economies of scale. In other words, I was thinking both that "the cost of setting up the factory to manufacture widgets dominates the cost of labor" and that "the cost of setting up the factory scales sublinearly with the number of widgets produced." If both assumptions are true, we should see downward-sloping long-run supply curves. In the real-world scenarios I had in mind, this is approximately true. But there are many others where it's not.

Thanks for pointing this out!

PS: My intuition was coming from the observation that the more dominant a role fixed costs play in the production process at the margin , the larger the divergence between the short-run and long-run supply curves. But of course, fixed costs could be a huge share of the production process money-wise and yet not play a dominant role at the margin (i.e., when comparing different short-run supply curves). And further, even if the long-run supply curve is much less upward-sloping than the short-run supply curve, that still doesn't make it downward-sloping.