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. a. 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? It from $ per paper to $ per paper. b. What happens to the MC per paper?. c. What happens to the minimum amount that you must charge to break even on these costs? It g from $ per paper to $ per paper.

Explanation / Answer

TFC = $500,000 + $10,00,000 = $15,00,000

AFC at X = 10,00,000 = $15,00,000/10,00,000 =1.5

AFC at X = 8,00,000 = $15,00,000/8,00,000 =1.87

a. S0 AFC increases from $1.5 to $1.87 per paper

b. MC will not change as variable cost is fixed and didn't changed

c. increases from $1.85 per paper to $2.225

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