Problem 1) Two supermarket chains plan to merge. An adviser has argued that the merger will bring no cost reduction because the marginal costs of both firms are similar. Is this reasoning correct?
Problem 2) 90% of a firm's energy costs of £1m are fixed but not sunk. The variable cost of energy is £2 per unit and it is currently using 100,000 units. What are its avoidable costs? i.e. how much money will it save by shutting down?
Problem 3) You bought a car when petrol was cheaper than it is now. At present it has zero second-hand value. If you don't use the car for commuting it will still cost you £6 a day in interest (on the loan you took out to buy it) and non-refundable insurance. If you do use the car for commuting, the cost rises to £8 a day. Alternatively you can get to work by public transport for £5 a day. Purely on economic grounds, do you have a greater incentive to travel to work by car or public transport?