Discussion
When average cost is declining
Answer: C
When average cost is declining, marginal cost must be below average cost. Average cost falls only when the extra unit costs less than the average of the units already produced, because adding a cheaper unit pulls the average down.
If marginal cost were above average cost, the average would be pulled up. Marginal cost may well be rising while average cost is still falling, as long as it remains below the average, so it need not be declining either. Marginal cost cuts average cost at the minimum point of the average cost curve, where the two are equal.
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