4.3 Panel a of Figure 6.8 shows that Intel’s average cost in a given year falls with the quantity that it produces.

In addition, extra production this year lowers the average cost curve next year. For example, in year 1, AC = 50 if quantity is 20 and AC = 40 if quantity is 60. If Intel produces 20 in year 1 and 40 in year 2, the average cost in year 2 will be 40.

However, for every extra 10 units it produces in year 1, its AC for any given quantity in year 2 falls by 10%.

a. What is the total cost and the average cost over the two years combined if the firm produces 20 in year 1 and 40 in year 2?

b. What is the total cost and average cost over the two years combined if the firm produces 60 in year 1 and 40 in year 2?

c. Over the two years combined, what is the true additional cost of producing 60 instead of 20 in year 1?