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------------------------------------------------ You are a newspaper publisher. You are in the middle of a one-year rental contract for your factory that requires you to pay $700,000 per month, and you have contractual labour obligations of $1,000,000 per month that you can't get out of You also have a marginal printing cost of $0.25 per paper as well as a marginal delivery cost of $0.1 per paper.

a. If sales fall by 20 percent from 1,000,000 papers per month to 800,000 papers per month, what happens to the average fixed cost per paper and to the marginal cost per paper?

Instructions: Round your answers to two decimal places.

Average fixed cost per paper rises per paper,

from $

17 per paper to $

Marginal cost per paper changes

b. What happens to the minimum amount that you must charge to break even on these costs?

Instructions: Round your answers to two decimal places.

The amount increases

from $ 0.26 per paper to $

per paper

Average fixed cost per paper is calculated by dividing the fixed costs (rental and labour obligations) by the number of papers produced. Initially, with 1,000,000 papers and fixed costs of $1,700,000, the average fixed cost per paper is $17. However, when sales fall to 800,000 papers, the fixed costs remain the same, resulting in an average fixed cost per paper of $23.33.

To break even, the minimum amount that must be charged per paper should cover all the costs. Initially, the minimum amount required to break even is calculated by dividing the total costs (fixed and variable) by the number of papers produced. With 1,000,000 papers and total costs of $2,700,000, the minimum amount to break even is $0.27 per paper. However, with a decrease in sales to 800,000 papers, the total costs remain the same, resulting in a higher minimum amount of $0.33 per paper required to break even.

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