Reference no: EM13137251

Question

Motorists have a choice between a petrol fuelled vehicle and a diesel equivalent which have different fixed and variable costs. Turbo diesel engined cars are more expensive to buy but have lower fuel consumption.

From the information below and stating any additional assumptions you have made and showing details of your calculations, calculate/graph the following for both petrol and diesel powered cars.
1) Total fixed costs for a year.
2) Variable cost per 100 km.
3) Marginal cost per km.
4) Calculate and graph the average total cost for the range 5,000 to 30,000 km per year at intervals of 2,500 km.
5) The marginal cost of giving a lift to a friend on a 100km journey you would be making anyway.
6) The cost of making a special journey of 60 km which you would not otherwise have made.
7) Calculate what would be the minimum annual vehicle use in km/year that would justify the choice of a diesel engine car over the petrol version? Does this correspond to your answer to 4) above?

Information for Diesel fuelled vehicle
Average fuel consumption: 20km/litre (diesel)
Price per litre diesel: £1.45
Vehicle excise duty: £100/year
Insurance: £600/year
Depreciation: £1200/year
Other consumables: £20/1000km

Information for Petrol fuelled vehicle
Average fuel consumption: 15km/litre (petrol)
Price per litre petrol: £1.40
Vehicle excise duty: £120/year
Insurance: £500/year
Depreciation: £1000/year
Other consumables: £25/1000km

Producing diagrams

The assignment will have to be submitted electronically in one of the following formats: Word, Excel, PowerPoint or PDF. The diagrams must be drawn electronically. A guide on how to produce diagrams in Word is available on Moodle, however you are free to use another software if you wish.

We strongly suggest you practice producing diagrams in advance of the deadline for submission. You should not reproduce diagrams by cutting and pasting from the web or scanning them from print sources.

Penalties for lateness

You will be penalised by a deduction of marks if your work is submitted late without good cause. Under University regulations, computing-related problems do not constitute good cause for late submission of assessment. See p. 16 of the Level 1 Economics 1A Course Handbook for details.