You are a newspaper publisher. You are in the middle of a one-year rental contra
ID: 1227273 • Letter: Y
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 $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 $0.35 per paper as well as a marginal delivery cost of $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? It rises from per paper to $per paper. What happens to the MC per paper? MC does not change What happens to the minimum amount that you must charge to break even on these costs? It increases from $per paper to $per paper.Explanation / Answer
Fixed Cost = Rent + Labour obligations = $600,000 + $1,000,000 = 1,600,000
A. AFC increase from 1,600,000/1,000,000 = $1.6 per to $1,600,000/800,000 = $2 per paper
B. MC does n't change
As MC is constant here and MC = MC of printing + MC of Delivery = $0.35 + $0.10 = $0.45
C. For Break even Price = Average Cost = AFC + AVC
So, IT increases from $1.6 + $0.45 = $2.05 to $2 + $0.45 = $2.45
If you don't understand anything then comment, I'ill revert back on the same. :)
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