Option 3: Average cost -> When average cost (AC) is falling in the long run, it means each additional unit produced is adding less to the total cost than the current average. This can only happen when the marginal cost (MC) - the cost of producing one more unit - is less than the average cost. The marginal cost pulls the average down. This is a fundamental relationship: MC < AC when AC is falling, MC > AC when AC is rising, and MC = AC at the minimum point of AC. -> correct