When average cost is declining as output increases, marginal cost is less than average cost. When average cost is rising, marginal cost is greater than average cost. When average cost is neither rising nor falling (at a minimum or maximum), marginal cost equals average cost.

What happens when average cost decreases?

Relationship Between Average and Marginal Cost

The curves show how each cost changes with an increase in product price and quantity produced. When the average cost declines, the marginal cost is less than the average cost. When the average cost increases, the marginal cost is greater than the average cost.

When average fixed costs are falling?

Average fixed cost is fixed cost per unit of output. As the total number of units of the good produced increases, the average fixed cost decreases because the same amount of fixed costs is being spread over a larger number of units of output.