You produce widgets

a. What is your average total cost?

If four widgets are produced at a total cost of $40, the average cost of each widget is $40/4, or $10.

b. Suppose you could produce one more (the fifth) widget at a marginal cost of $5. If you do produce that fifth widget, what will your average total cost be? Has your average cost increased or decreased? Why?

If five widgets can be produced at a total cost of $45, then the average cost of each widget is $45/5, or $9. That is lower than the average cost of $10 in (a) above. That happens if the marginal cost is lower than the average total cost.

c. Suppose instead that you could produce one more (the fifth) widget at a marginal cost of $20. If you do produce that fifth widget, what will your average total cost be? Has your average total cost increased or decreased? Why?

The fifth widget at a marginal cost of $20 would mean that the total cost for the five widgets was $60. That makes the average cost $60/5, or $12. That is higher than the original cost of $10 in scenario (a). That happens if the marginal cost is higher than the average total cost.