Question

Explain how the Internet has affected the average fixed cost of a daily print newspaper.

Answer 1

Daily newspaper production is an example of economies of scale as the average total cost decreases as output rises. The creation of a newspaper (writing it, including images and advertising, reviewing copies, and printing out articles) has high fixed costs. But once the newspaper is published and prepared for publication, it is possible to spread these high fixed costs over a large number of production units. When print production increases, the average total cost decreases.

There are fewer subscribers to the print edition of the news paper with the advent of the Internet, and newspaper companies have found that they can not spread their high fixed costs over a large number of production units because the newspaper has fewer sales. As a result, rates must be increased to offset the high fixed costs, but the higher prices reduce the number of subscribers. This situation is likely to shift more and more readers to the Internet and replace most newspapers in print.