According to our textbook (page 341) when one additional unit is produced, two factors directly impact the change in average total costs, the Spreading effect and the Diminishing Returns effect. In the following two situations explain how the factors of the Spreading effect and the Diminishing Returns effect cause the average total cost to be different.
a. Production of the 10th Gizmo resulted in an average total cost (ATC) of $20, but production of the 11th Gizmo resulted in an average total cost of $22.
b. Production of the 10th Gizmo resulted in an average total cost (ATC) of $20, but production of the 11th Gizmo resulted in an average total cost of $18.