Which of the following correctly states the relationship among the average cost functions?

1. The basic identity is ATC = AFC + AVC. 2. Rearranging for AFC gives AFC = ATC − AVC. 3. This matches option A exactly. 4. (B), (C) and (D) all violate the identity, since AVC and AFC are the two parts that sum to ATC, not differences in those orders. Hence AFC = ATC − AVC. _Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 3 Unit II "Theory of Cost", p.6_