Is it possible for marginal cost to be falling and average cost to be rising?
Answer: As long as marginal cost is greater than average cost, average cost will be rising. But if you draw a graph with both marginal cost and average cost (such as in Figure 7.12) you will see that for every point that average cost is rising, not only is marginal cost greater than average cost but it is also rising. What would have to happen for marginal cost to decrease after it has already started to increase is that at some level of production, a new opportunity for increases in marginal productivity would have to appear. With a fixed amount of capital, this is highly unlikely (and well beyond any theory we have developed here). Therefore, we would not expect to witness decreasing marginal cost and increasing average cost at any level of output. (Note: it is possible to see increasing marginal cost and decreasing average cost. Look at the levels of output just before minimum average cost.)