1. Capital-intensive firms, such as in utilities or the airlines, generally have average total costs (ATC) that decline over a long range of output. Please answer the following questions:
   1. Why does this occur (hint: it has something to do with fixed costs)? Please explain and show all work.
   2. When average total costs (ATC) are declining, what is the behavior of marginal costs (are marginal costs increasing, decreasing, or constant)? Please explain and show all work.
   3. Airlines tend to operate in an environment where ATC and MC are always declining. This implies that the airlines' marginal revenue (MR) willnecessarilybe greaterthan its marginal cost (MC). If you were an airline company manager, would you recommend for a continued contraction or expansion of the firm/operation (Yes or no and whywith detailed explanation)?
   4. True or False and why:

Because capital intensive firms (higher capital to labor ratios) tend to exhibit declining average total and marginal costs, over the long-run they tend to become monopolistic or operate in non-competitive environments.