Should the firm shut down immediately when total cost fixed

Reference no: EM13234872

The firm currently uses 50,000 workers to produce 200,000 units of output per day. The daily wage per worker is $80, and the price of the firm's output is $25. The cost of other variable inputs is $400,000 per day.
Assume that total fixed cost equals $1,000,000. Calculate the values for the following four formulas:

* Total Variable Cost = (Number of Workers * Worker's Daily Wage) + Other Variable Costs
* Average Variable Cost = Total Variable Cost / Units of Output per Day
* Average Total Cost = (Total Variable Cost +Total Fixed Cost) / Units of Output per Day
* Worker Productivity = Units of Output per Day / Number of Workers

Then, assume that total fixed cost equals $3,000,000, and recalculate the values of the four variables listed above.
For both cases, calculate the firm's profit or loss.

For both sets of calculations, compare the firm's output price and the calculated average variable cost and average total cost. Should the firm shutdown immediately when the total fixed cost equals $1,000,000? Should the firm shut down immediately when the total fixed cost equals $3,000,000?
For one of the cases, if the firm can operate at a loss in the short-run, how many employees need to be laid off in order for the company to break even? To calculate the number of workers to be laid off, divide the loss for the two situations by the daily wage per worker. Given a lower number of employees now working at the company, what is the change in worker productivity? Is the change in worker too large, and the firm should shut down immediately? Or in your opinion, can the workers increase their productivity, assuming that the units of output per day remain fixed at 200,000 units, so that the firm operates at a breakeven state?

Reference no: EM13234872

Questions Cloud

How would the natural rate of unemployment change : Suppose that Congress passes legislation making it more difficult for firms to fire workers (an example is a law requiring severance pay for fired workers). If this legislation reduces the rate at which people are let go from their jobs

Write for loops to produce the following output : Write for loops to produce the following output

Decide whether the demand for paint is elastic or unitary : Your usage of paint drops from 35 gallons a month to 20 gallons a month. Perform the following: 1. Compute the price elasticity of demand for paint and show calculations. Decide whether the demand for paint is elastic, unitary elastic, or inelasti..

Calculate the first n amount of terms of following sequence : if given x0=5, x1=2 and xi=(2xi-1+ 2xi-2) use c++ to calculate the first n amount of terms of this sequence. Using only recursion

Should the firm shut down immediately when total cost fixed : For both sets of calculations, compare the firm's output price and the calculated average variable cost and average total cost. Should the firm shutdown immediately when the total fixed cost equals $1,000,000

Measure employee morale : What measures can be taken to assess the morale of current employees and how likely they are to leave or stay and describe at least 3 methods you could use to measure employee morale

Write for loops to produce the following output : Write for loops to produce the following output

Find the final temperature of the ball : A copper ball with a radius of 1.5cm is heated until its diameter has increased by 0.17mm .Assuming an initial temperature of 21?C

Calculate the npv of the cash flows expected in 2006 : Calculate the NPV of the cash flows expected in 2006-2010 using only the 2005 Cost of Capital Calculate the NPV of the cash flows using the CASH FLOW figures at the bottom of the spreadsheet

User Account

All Pages