If a donut shop knows that the marginal costs of the 200th donut is $2.00 and that the average total cost of?

Question

making 199 donuts is $2.20, what will happen?

Answer 1

The company will make the extra donut. If the cost of the first 199 donuts averages out to 2.20, and the next donut costs 20 cents less to produce, then they will make that extra donut because they can charge the same amount as the other donuts, but it will cost them 20 less cents to make it.

Answer 2

The donut shop will not make the 200th donut because it would cost too much. The ATC of the 200th donut will be $4.20 ($2.00+2.20). The marginal cost is how much it costs to make the next donut as compared to the cost of the last donut. So it costs an additional $2.00 to make the 200th donut, so it's not worth it to make the 200th donut.