# You produce shoes. Currently you produce 4 pairs of shoes at a total cost of %40.
a)what is your average total cost (ATC)
b)Suppose you could produce one more( fifth)pair at a marginal cost of $20. If you do produce that fifth pair of shoe, what will your average total cost be?Has your average total cost increased or decrease d?why?
c)suppose instead that you could produce one more(the fifth) a pair at a marginal cost of $20. If you do produce that fifth pair ofshoe, what will your average total cost be?Has your average total cost increases or decreases?Why?
a) To calculate the average total cost (ATC), divide the total cost by the total quantity produced. In this case, the total cost is $40 and the total quantity produced is 4 pairs of shoes. Therefore, the average total cost (ATC) would be:
ATC = Total Cost / Quantity
ATC = $40 / 4
ATC = $10 per pair of shoes
b) If you produce one more (fifth) pair of shoes at a marginal cost of $20, you need to recalculate the average total cost. To do this, add the marginal cost to the total cost and divide by the new total quantity produced.
New Total Cost = Total Cost + Marginal Cost
New Total Cost = $40 + $20
New Total Cost = $60
New Total Quantity = Quantity + 1
New Total Quantity = 4 + 1
New Total Quantity = 5
New ATC = New Total Cost / New Total Quantity
New ATC = $60 / 5
New ATC = $12 per pair of shoes
Therefore, the average total cost (ATC) increases from $10 to $12 per pair of shoes when producing the fifth pair at a marginal cost of $20.
c) In the previous scenario, the average total cost increased when producing the fifth pair of shoes. This is because the marginal cost of producing the fifth pair is higher than the average cost of the first four pairs.
However, if we consider a different scenario where the marginal cost for producing the fifth pair is $20 but the total cost remains at $40, the calculation would be as follows:
New Total Cost = Total Cost
New Total Cost = $40
New Total Quantity = Quantity + 1
New Total Quantity = 4 + 1
New Total Quantity = 5
New ATC = New Total Cost / New Total Quantity
New ATC = $40 / 5
New ATC = $8 per pair of shoes
In this case, the average total cost (ATC) decreases from $10 to $8 per pair of shoes when producing the fifth pair at a marginal cost of $20 but without changing the total cost.
Therefore, it is essential to understand the context and how the different cost factors affect the average total cost.