The correct answer is: C. The marginal costs are above average variable costs.
Average variable costs (AVC) are the total variable costs divided by the quantity of output produced. Marginal costs (MC) are the change in total costs that results from producing one additional unit of output.
If the AVC are rising, then it means that the additional cost of producing one more unit of output is increasing. This can happen for a number of reasons, such as increasing input prices or decreasing efficiency. When the MC are above the AVC, then the firm is experiencing increasing marginal costs. This means that the firm is facing increasing costs as it produces more output.
The other options are incorrect for the following reasons:
- Option A: If the average total costs (ATC) are at a maximum, then the AVC must be falling. This is because the ATC are equal to the sum of the AVC and the average fixed costs (AFC). When the AVC are falling, then the ATC must also be falling.
- Option B: If the average fixed costs (AFC) are constant, then the AVC must be increasing. This is because the AVC are equal to the total variable costs divided by the quantity of output produced. When the AFC are constant, then the AVC must be increasing in order for the ATC to be rising.
- Option D: If the average variable costs (AVC) are below the average fixed costs (AFC), then the firm is experiencing economies of scale. This means that the firm’s costs are decreasing as it produces more output.