1) The owner should demand $0.70 for each newspaper.
2) To increase his Total Profit to the highest possible level in the scenario, the Manager must sell 5000 Newspapers each day.
Owners of Star should eventually leave the industry.
Total fixed costs are all of the expenses a company incurs to maintain its operations, regardless of the volume of goods it produces or sells. Regardless of productivity or lack thereof, total fixed costs remain constant. When production is at a standstill, fixed costs are still in place.
The loss minimising price is $0.70, as we can see. When marginal revenue and marginal cost are equal, loss minimization occurs. However, the 5000 newspapers mark the point in the above table where marginal income is closest to marginal cost, and after that point, marginal revenue falls below marginal cost, signalling an increase in losses.
Manager should therefore charge $0.70.
To reduce losses in the near run, 5000 units should be sold.
The owners of star should leave the sector in the long run because they are losing money at all volumes and prices due to an increase in fixed expenses.
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