Question

Consider the following costs of owning and operating a car. A ​$15,000 Fiat 500 Pop financed over 60 months at 10 percent interest means a monthly payment of ​$319. Insurance costs ​$140 a month regardless of how much you drive. The car gets 25 miles per gallon and uses​ regular-grade gasoline that costs ​$2.50 per gallon.​ Finally, suppose that wear and tear on the car costs about ​$0.15 a mile.
Required:
a. Which costs are fixed, and which are variable?
b. What is the marginal cost of a mile driven?
c. In deciding whether to drive from Atlanta to Las vegas (about 2,000 miles round-trip), which costs would you consider? Why?

Answer 1

Answer:

(a) Fixed cost = Monthly payment of buying car and insurance.

Variable cost = Regular - grade gasoline cost and depreciation.

(b) $0.25

(c)  Variable cost

Explanation:

According to the scenario, computation of the given data are as follow:-

a). Fixed cost are include monthly payment of buying car and insurance and variable cost include regular - grade gasoline cost and depreciation.

b). Marginal Cost of a Mile Driven = Cost Per Gallon ÷ Mile Per Gallon + Car Cost Per Mile

= $2.50 ÷ 25 + 0.15

= $0.25

c). Whether to drive from Atlanta to Las Vegas (about 2,000 miles round trip) we will considered variable cost because its change according to the traveled distance.