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 million per month that you can't get out of. You also have a marginal printing cost of $.25 per paper as well as a marginal delivery cost of $.10 per paper. If sales fall by 20 percent from 1 million papers per month to 800,000 papers per month, what happens to the AFC per paper, the MC per paper, and the minimum amount that you must charge to break even on these costs?

Explanation / Answer

total payable costs= 1,500,000$ MC per paper total = .35$ initial sale = .35*1000,000 = 350,000 new sale= x*800000=350,000= .4375 chargeable cost to break even = .4375$ this is also the new marginal cost and AFC

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