Suppose that Tommy Hilfiger’s marginal cost of a jacket is a constant $100 and at one of the firm’s shops, total fixed cost is $2,000 a day. The profit maximizing number of jackets sold in this shop is 20 a day. When the shops nearby start to advertise their jackets, this Tommy Hilfiger shop spends $2,000 a day advertising its jackets, and its profit maximizing output jumps to 50 jackets a day.
What is this shop’s average total cost of a jacket sold before it starts to advertise? What is its average total cost of a jacket with advertising?