# Economics question average fixed cost?

Please do not provide only answers, I need to know HOW to do this

You are a newspaper publisher. You are in the middle of a one-year rental contract for your factory that requires you to pay \$600,000 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 \$0.25 per paper as well as a marginal delivery cost of \$0.1 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 Average Fixed Costs per paper?

Average Fixed Costs (Rises or falls) per paper from \$ per paper to \$ per paper.

What happens to the MC per paper?

What happens to the minimum amount that you must charge to break even on these costs?

The amount (Rises or falls) from \$ per paper to \$ per paper.

Relevance

Average fixed cost (AFC) is fixed cost/quantity. Fixed cost is the cost that's the same no matter how much you produce. So the fixed cost here is the cost of the factory, \$600,000 + labor obligations of \$1,000,000 = \$1,600,000. So at AFC at 1,000,000 papers is \$1.6/paper and at 800,000 it goes up to \$2.

Marginal Cost (MC) is that cost that is added to the total cost of producing one more paper, so \$.25 to bring and \$.1 to deliver so \$.35 total. MC stays the same at any production level.

To determine the minimum amount needed to charge to break even Price=(MC+TFC)/Quantity.

Price=(\$.35x + \$1,600,000)/Quantity where x is the amount of newspapers so

P=(\$.35(800,000) + 1,600,000)/800,000

OR you could simply MC + AFC = P so \$.35 + \$2 = \$2.35 a paper to break even.

• Login to reply the answers