The correct answer is: A. ATC is falling.
When marginal cost (MC) is above average cost (AC), it means that the cost of producing each additional unit of output is greater than the average cost of all the units that have already been produced. This implies that the average cost of production is increasing. However, if output is rising, it means that the total output is increasing. As the total output increases, the average cost of production will eventually start to fall, even though the marginal cost is still above the average cost. This is because the fixed costs are spread over a larger number of units, which lowers the average cost.
AVC is average variable cost, which is the total variable cost divided by the number of units produced. Variable costs are the costs that vary with the level of output, such as the cost of raw materials. When MC is above AVC, it means that the cost of producing each additional unit of output is greater than the variable cost of producing that unit. This implies that the variable cost per unit is falling. However, if output is rising, it means that the total variable cost is increasing. As the total variable cost increases, the variable cost per unit will eventually start to rise, even though the marginal cost is still above the average variable cost.
ATR is average total cost, which is the total cost divided by the number of units produced. Total cost is the sum of the fixed costs and the variable costs. When MC is above AC, it means that the cost of producing each additional unit of output is greater than the average cost of all the units that have already been produced. This implies that the average cost of production is increasing. However, if output is rising, it means that the total output is increasing. As the total output increases, the average cost of production will eventually start to fall, even though the marginal cost is still above the average cost.