Consider the following costs of owning and operating a car. A ¥2,300,000 Toyota RAV4 financed over 48 months at 4 percent interest means a monthly payment of approximately ¥52,000. Insurance costs ¥20,000 a month regardless of how much you drive. The car gets 30 km per liter and uses regular-grade gasoline that costs ¥400 per liter.
Finally, suppose that wear and tear on the car costs about ¥5 per km. Which costs are fixed, and which are variable?
What is the marginal cost of a kilometer driven? In deciding whether to drive from Tokyo to Kyoto (about 900 km round-trip), which costs would you consider? Why?