You are a newspaper publisher. You are in the middle of a one-year rental contra

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 $500,000 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 pinting cost of $0.25 per paper as well as a marginal delivery cost or $0.10 per paper Instructions: Round your answers to 2 decimal places a. 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? nt (Cikk o selecth rom Seraper to sper wapn per paper to per paper b. what happens to the NC per paper? tClickto select)-- c. What happens to the minimum amount that you must charge to break even on these costs? it | (Click to selectin trom ${ per paper to per paper

Explanation / Answer

(a)

AFC = Total fixed cost / Quantity = (Rental + Labor costs) / Quantity = $(500,000 + 1,000,000) / Quantity

= $1,500,000 / Quantity (Q)

When Q = 1,000,000, AFC ($) = 1,500,000 / 1,000,000 = 1.50

When Q = 800,000, AFC ($) = 1,500,000 / 800,000 = 1.88

Therefore,

AFC increases from $1.50 to $1.88.

(b) MC remains unchanged (Since this measures the change in total cost divided by change in quantity).

(c) In breakeven, Revenue = Fixed cost + Total variable costs

Price (P) x Q = $1,500,000 + Q x $(0.25 + 0.10)

P x Q = $1,500,000 + Q x $0.35

When Q = 1,000,000, we have P x 1,000,000 = $1,500,000 + (1,000,000 x $0.35)

P x 1,000,000 = $1,500,000 + $350,000 = $1,850,000

P = $1.85

When Q = 800,000, we have P x 800,000 = $1,500,000 + (800,000 x $0.35)

P x 800,000 = $1,500,000 + $280,000 = $1,780,000

P = $2.23

Minimum amount increases from $1.85 per paper to $2.23 per paper.

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.