Suppose you form the widgets. Currently you form the four widgets at a total cost of $40.
1. Determine what is your average total cost?
2. Assume you could produce one more widget at a marginal cost of $5. If you do produce that fifth widget, discuss what will your average total cost be? Has your average total cost increased or decreased? Why?
3. Assume instead that you could form the one more widget at a marginal cost of $20. If you do produce that fifth widget, discuss what will your average total cost be? Has your average total cost increased or decreased? Why?