Question

"Suppose you are the owner of a small t-shirt printing business. While conducting a cost analysis of your business, you find that at current production levels, your average total cost (ATC) is $10. You also know that if you increase production by one more unit, the marginal cost of that unit will be $5. If you produce another t-shirt" does the avg/marginal cost decrease or increase?

Answer 1

The answer is The average total cost of production will decrease.

Step-by-step explanation:

It cannot be known to be true if the marginal cost will decrease/increase for the very next unit of production. this will depends on what point of curve of marginal cost and the level of the current production..

However, it is certain that, is the average total cost for the next unit produced will decrease, because the ATC is defined as total cost/output.

The next unit produced would definitely reduce the ATC, Since the total output is in the denominator, this cost would move over an output larger.

Answer 2

The average total cost of production will decrease.

Step-by-step explanation:

Average total costs consists of total fixed cost plus the total variable cost divided by the number of output/unit produced.

Now, since the fixed cost is fixed and doesn't change due to the change in output, the fixed cost per unit or the average fixed cost will decrease when the output will increase. Hence, resulting in the decrease of the average total cost of production.

I hope I cleared your concept above.

Best of luck and Good luck.