The correct answer is: B. Marginal cost will decrease.
Marginal cost is the additional cost incurred by producing one more unit of a good or service. Average cost is the total cost divided by the number of units produced.
If average cost is falling, it means that the total cost is decreasing as the number of units produced increases. This can happen for a number of reasons, such as economies of scale. As a firm produces more units, it can spread its fixed costs over a larger number of units, which lowers the average cost.
When average cost is falling, marginal cost must be below average cost. This is because the additional cost of producing one more unit must be less than the average cost of all the units produced so far. Otherwise, the average cost would not be falling.
For example, let’s say a firm has a total cost of $100 and produces 10 units. The average cost is $10 per unit. If the firm produces one more unit, the total cost will be $105. The marginal cost is $5, which is below the average cost of $10.
In conclusion, if average cost is falling, marginal cost must be below average cost.