When marginal cost is below average total cost, average total cost will be falling, and when marginal cost is above average total cost, average total cost will be rising. A firm is most productively efficient at the lowest average total cost, which is also where average total cost (ATC) = marginal cost (MC).

Why average cost is falling?

When average cost is declining as output increases, marginal cost is less than average cost. ... Constant marginal cost/high fixed costs: each additional unit of production is produced at constant additional expense per unit. The average cost curve slopes down continuously, approaching marginal 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.