Answer
Average fixed cost per paper would increase
The marginal cost would remain the same
The minimum break even price is 2.23 dollars
Work Step by Step
Since the one year rental contract and the contractual labor obligations are fixed, the average fixed cost per paper would increase as the quantity of papers decreased, as shown in the calculations below:
1 million papers: $\frac{500,000+1,000,000}{1,000,000}$ = 1.50
800,000 papers: $\frac{500,000+1,000,000}{800,000}$ = 1.87
Marginal costs of 0.25 and 0.10 dollars a paper would remain the same regardless of the quantity of paper that is sold
Minimum break even price:
Total cost at 800,000 papers: 500,000 + 1,000,000 + 800,000(0.25) + 800,000(0.1) = 1,780,000
To earn back this price, they would have to charge
$\frac{1,780,000}{800,000}$ = 2.23 dollars
