hey shafqat,
I think you're probably right... usually you can't assume it.
But I guess in the particular case of n=3 it's quite hard (I think most ppl, myself included, wouldn't work it out), so it's assumable... esp as you need to see that a^2 etc are the terms you sub in...
Here's a more formal proof.
1) Prove AM-GM for n=2 (ie x^2+y^2>=2xy)
2) Prove it for n=4 (ie x^4+y^4+w^4+z^4>=4xywz; you use step 1 a few times..)
3) the proper form of step 2 is actually x+y+w+z>=4(xywz)^(1/4). Hence using this form substitute z=(x+y+w)/3, cancel out a little and you get the desired result
In general, to prove AM-GM (you DO NOT NEED THIS PROOF for 4U HSC):
1) Prove for n=2
2) Prove for induction that n=2^k where k is an integer works
3) substitute the last term = the average of the other terms, cancel out to get 2^k-1
4) repeat step 3 to get desired number.