Economic Analysis Essay

851 Words4 Pages
Tahania Rashid
MBA 6008 – Global Economic Environment
September 14, 2014
Unit 3 Assignment 1
Chapter 9 - Problem 3, pg. 219

Q: 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 $ 0.35 per paper as well as a marginal delivery cost of $ 0.10 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?
A:
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Using the MR = MC rule it will produce 8 units. Profits per unit = $7.87 (= $56 - $48.13); total profit = $62.96.
b. Answer the questions of 4a assuming product price is $ 41.
Yes, $41 exceeds AVC at the loss—minimizing output. Using the MR = MC rule it will produce 6 units. Loss per unit or output is $6.50 (= $41 - $47.50). Total loss = $39 (=
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