In the ideal competitive model, it is standard to assume that marginal costs of
production for individual firms are rising with increases in output beyond equilibrium
levels. Because firms have some fixed costs that must be paid before any production
can occur, the average cost of producing output first falls as the fixed costs are
spread over a larger number of units, then rises as the increasing marginal cost begins
to dominate. Consequently, some output level minimizes the average cost of the
firm