Question

You are a newspaper publisher. You are in the middle of a one-year rental contract for your factory that requires you to pay $700,000 per month, and you have contractual labor obligations of $1,000,000 per month that you can't get out of. You also have a marginal printing cost of $0.35 per paper as well as a marginal delivery cost of $0.10 per paper.

If sales fall by 20 percent from 1,000,000 papers per month to 800,000 papers per month, what happens to the AFC per paper? Round your answers to two decimal places.

What happens to the MC per paper? What happens to the minimum amount that you must charge to break even on these costs? Round your answers to two decimal places.

Answer 1

First find the Average fixed cost per papper.

That is,

1. Fixed cost is -

, If sales fall by 20%

Then,

So AFC per papper rises from $1.95 to 2.437

2. The MC will be changes from this 20 % fall is

then

So the marginal cost are changes $1.95 to $2.88

3. Before the changes in cost

So the changes is

The amount changes from $2.40 to $2.88 per paper

Step-by-step explanation: