# Albert’s Charter Bus Venture (example) Where is the Loss Region? Where is the Profit Region? Where is the Breakeven point? A new machine comes with 100 free service hours over the first year. Additional time costs \$75 per hour. What are the average and marginal costs per hour for the following quantities?

Albert plans to charter a bus to take people to see a wrestling match show in Jacksonville. His wealthy uncle will reimburse him for his personal time, so his time cost can be ignored.

Item Cost Item Cost

Bus Rental \$80 Ticket \$12.50

Gas Expense \$75 Refreshments \$ 7.50

Other Fuel Costs \$20

Bus Driver \$50

Total Costs \$225.00 Total Costs \$20.00

Which of the above are fixed and which are variable costs?

How do we compute Albert’s total cost if he takes n people to Jacksonville?

Albert’s Charter Bus Venture (example)

Albert’s Charter Bus Venture (example)

Answer: Total Cost = \$225 + \$20 n.

Graph of Total Cost Equation:

n

Total cost

marginal cost

-The cost to take one more person

average cost

– Average cost: the cost per person

Avg. Cost = TC/n

Avg. Cost = (\$225+\$20n)/n = \$20 + \$225/n

For n = 30, TC = \$885

Avg. Cost = \$885/30 = \$29.50