Simply state the short run shut down rule as stated in the

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Reference no: EM13244097

The firm currently

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? Provide a two to four page report to management of the firm that discusses what should be done.

Show the formula for each of the variables you are asked to calculate. Then show your calculations for that variable for each case. The variables you will need to calculate are:

Total Labor Costs

Total Variable Costs

Total Costs

Total Revenue

Average Variable Costs

Average Total Costs

Worker Productivity

Layoffs

Simply state the short run shut down rule as stated in the book and apply it using the numbers given. Be sure to show your work to support the decision you outline in your report. 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 CostsAverage Variable Cost = Total Variable Cost / Units of Output per DayAverage Total Cost = (Total Variable Cost +Total Fixed Cost) / Units of Output per DayWorker Productivity = Units of Output per Day / Number of WorkersThen, 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? Provide a two to four page report to management of the firm that discusses what should be done.Be sure to show your work to support the decision you outline in your report.

Reference no: EM13244097

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