Question

As of June 2014, John Green's international bestselling novel, The Fault in Our Stars, had sold more than 10.7 million copies. In book publishing, fixed costs are high and marginal costs are low and fairly constant. Suppose that the marginal cost of the print version of The Fault in Our Stars is $2.00 per book and is the same for each book up to 20 million copies. Assume that this includes all variable costs. Explain why in this case marginal cost (MC) is a horizontal line, as is average variable cost (AVC). Marginal cost and variable cost are horizontal lines because these costs are with output Suppose that the fixed cost of producing The Fault in Our Stars is $40 million. The average total cost of the book if the publisher produces 5 million copies is $ (Round your response to two decimal places.) The average total cost of the book if the publisher produces 10 million copies is

Answer 1

Marginal cost and variable cost are horizontal lines because these costs are unchanging with output.

Since variable costs and marginal costs do not change with output, they will remain same no matter what the output is and hence will be horizontal.

It is given that the fixed cost is 40 million while the variable cost is $2 per book. We know that

Average cost= Total costs/Number of copies published. And,

Total costs=Fixed Cost+Variable cost.

With this information, we can calculate

The average total cost of the book if the publisher produces 5 million copies-

Total Cost=40m+2*5m=40+10=50m

Average cost=50/5=$10 when 5 million copies are produced.

The average total cost of the book if the publisher produces 10 million copies-

Total Cost=40m+2*10m=40+20=60m

Average cost=60/10=$6 when 10 million copies are produced.

The average total cost of the book if the publisher produces 20 million copies

Total Cost=40m+2*20m=40+40=80m

Average cost=80/20=$4 when 20 million copies are produced.