The correct answer is Option (1) → (A), (B), (C), (D)
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(A) SAC is the sum of AVC and AFC. This statement provides the fundamental definition of SAC, explaining its components (Average Variable Cost and Average Fixed Cost). It's the most logical starting point.
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(B) SAC falls when AVC and AFC decrease. This describes the initial phase of the SAC curve where it is declining. Both AVC and AFC typically decrease at low levels of output due to increasing returns.
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(C) When the fall in AFC is greater than the rise in AVC and SAC is still falling. This statement explains a crucial point in the "U" shape. After a certain point, AVC starts to rise due to the law of diminishing returns. However, AFC continuously falls as output increases. If the rate at which AFC falls is greater than the rate at which AVC rises, SAC will continue to fall, albeit at a slower rate.
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(D) When a rise in AVC becomes greater than the fall in AFC, SAC rises. This statement describes the second half of the "U" shape. Eventually, the rise in AVC becomes dominant, outweighing the continuous but diminishing fall in AFC. At this point, the SAC curve starts to rise.
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