SolutionsCF8e-Ch8

# SolutionsCF8e-Ch8 - Case/Fair Microeconomics Solutions...

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Case/Fair Microeconomics Solutions CHAPTER 8 1. The monthly payment and the insurance do not depend on the amount that you drive. They must be paid even if you do not drive. Thus, the fixed costs are \$418.71 per month. The marginal cost of a mile driven is \$1.50 divided by 20, or 7.5 cents, plus 15 cents for a total of 22.5 cents per mile. The “cost” of a trip to Pittsburgh would be \$225. Only the variable costs of 22.5 cents x 1,000 miles are incurred as a result of the trip. Some would argue that only the interest portion of the monthly payment is a cost because the principal repayment represents a form of saving because you will fully own the car in five years. 2. At 5 million copies AFC = \$6, at 10 million copies AFC = \$3 and at 20 million copies AFC = \$1.50. If each book costs \$1.50, and that is true for every book up to 40 million, then the average variable cost of a volume is \$1.50 regardless of how many volumes come off the press, at least up to 40 million. If the producer prints 5 million copies, total fixed cost is \$30 million, and total variable cost is 5 million times \$1.50 or \$7.5 million. Thus, total cost is \$37.5 million and average total cost is \$37.5 million divided by 5 million or \$7.50. You can get this same answer by simply adding

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