List several fixed and variable costs associated with owning and operating an automobile.
List several fixed and variable costs associated with owning and operating an automobile. Suppose you are considering whether to drive your car or fly 1,000 miles to Florida for spring break. Which costs—fixed, variable, or both—would you take into account in making your decision? Would any implicit costs be relevant? Explain
In the short run, some costs are fixed, while the others are variable. The fixed costs are the costs that do not change with the change in output, while the variable costs are those that vary with the level of output produced. When talking about having an automobile, there might be several fixed costs associated in the form of fees paid for obtaining an automobile and driver's license, making insurance premiums, paying taxes to the government in the form of pollution tax, and the purchase price of the car. The variable cost here would be the costs associated with the running of the automobile, which includes expenses made on gasoline and lubricants, frequent repairs, costs of getting car washes, and depreciation. The latter is included in the variable costs as the driving increases, the wear and tear caused to the automobile increases.
When deciding to travel by either automobile or air travel, the variable costs would be considered. The variable costs of traveling by vehicle are stated above and the variable costs associated with the air travel would be the airline tickets. The fixed costs of the automobile are not taken into account, since the individual would be required to pay them even he does not drive the vehicle.
The implicit cost associated with self-driving would include the wear and tear that would be caused to the automobile when it would be driven for such a long route. Another implicit cost would be the value of the time that would be required for driving the automobile to the destination. The latter would also be an implicit cost while traveling with the airline. However, the implicit cost of time lost would be less with the airline and if an individual places a higher value on the time lost, the individual would prefer the airline mode over the self-driving automobile. As such, the implicit cost of time is important for making the decision.
Fixed costs could be the purchase price, pollution tax, license fees, and Insurance premium payments. The variable costs might be the expenses on gasoline, expenses on lubricants, car washes, and maintenance costs.
The variables costs would only be considered. There would be some implicit costs associated with self-driving in the form of time lost and wear and tear to the vehicle. Out of them, the implicit cost of time lost would be relevant.
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