A gadget-making firm is engaged in long-run production plann…
A gadget-making firm is engaged in long-run production planning. They must first decide whether to make a small investment (for a fixed cost of $20), or a large investment (for a fixed cost of $40). After this decision, the firm decides how many gadgets to produce: 1, 2, or 3. The total variable costs for a small investment firm are: $25 if one gadget is produced. $60 if two are produced. $85 if three are produced. The total variable costs for a large investment firm are: $0 if one gadget is produced. $30 if two are produced. $50 if three are produced. If the firm seeks to minimize average total costs here, should they make the small or large investment? (Type either “small” or “large” here, without the quotes.) How many gadgets do they produce? At what average total cost? $ per gadget.