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Marginal analysis of the cost of driving to Pittsburgh

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Consider the following costs of owning and operating a car. A $25,000 Ford Taurus financed over 60 months at 7 percent interest means a monthly payment of $495.03. Insurance costs $100 a month regardless of how much you drive. The car gets 20 miles per gallon and uses unleaded regular gasoline that costs $3.50 per gallon. Finally, suppose that wear and tear on the car costs about 15 cents a mile. Which costs are fixed, and which are variable? What is the marginal cost of a mile driven? In deciding whether to drive from New York to Pittsburgh (about 1,000 miles round trip) to visit a friend, which costs would you consider? Why?

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Solution Preview

Monthly payments and insurance are fixed costs. Gasoline and wear are variable costs.
It costs (350/20) = 17.5 cents' ...

Solution Summary

How to decide which costs to consider in planning a car trip

$2.19
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