You rent a car for $29.95. The first 165 miles are free, but each mile thereafter costs 16 cents. You plan to drive it 200 miles. What is the marginal cost of driving the car?
A. The marginal cost is the benefit of the next best alternative foregone by making the decision. It is whatever you could have bought with $29.95 plus the additional $32.00 you spend to drive the car 200 miles at a rate of $0.16 per mile.
B. The marginal costs are 16 cents per mile for miles above 165 plus the cost of gas. Therefore the marginal cost is $5.60 plus the cost of gas. The initial payment can be forgotten because it is a sunk cost; it is not part of marginal costs.
C. The marginal cost is the initial $29.95 you spend to rent the car. The additional payment can be forgotten because it is a sunk cost
D. The marginal cost is the average of the cost of gas for all miles driven. The initial payment and additional payment can be forgotten because you've already agreed to them.