QUESTION 2 A recent food craze in Brisbane has seen an increase in the popularity of doughnuts. The market for doughnuts is perfectly competitive. Gerald decides to open a single doughnut shop called Doughnut Love. He will incur fixed costs for store rent, and variable costs include operating the machinery. ingredients and wages for employees. Assume that Gerald's marginal costs increase with the total quantity of doughnuts produced and are initially less than his average variable costs. As the quantity of doughnuts Gerald produces in his store increases, which of the following statements are true: [3 Gerald's average variable costs will always remain constant. [3 Gerald's average variable cost will increase at a constant rate. [3 Gerald's average variable cost will initially be high, but will continually decrease. [:] Gerald's average variable cost will initially decrease and then, after a certain point, start to increase