Will its average cost of production increase or decrease Explain. First, calculate average cost this year AC 1 10 0.1Q 0.3q 10 (0.1)(40) (0.3)(10) 9.00. Second, calculate the average cost next year AC 2 10 (0.1)(50) (0.3)(12) 8.60. (Note: Cumulative output has increased from 40,000 to 50,000, hence Q 50 next year) The average cost will decrease because of the learning effect, and despite the diseconomies of scale involved when annual output increases from 10 to 12 thousand computers. 13. Suppose the long-run total cost function for an industry is given by the cubic equation TC ab b
