Purchase Solution

Analyzing an unprofitable firm

Not what you're looking for?

Ask Custom Question

You've been hired by an unprofitable firm to determine whether it should shut down its unprofitable operation.
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. Although you don't know the firm's fixed cost, you know that it is high enough that the firm's total costs exceed its total revenue. Provide a report to management of the firm as to whether or not it should continue to operate at a loss? Be sure to show your work to support the decision you outlined in your report

Purchase this Solution
Solution Summary

Solution describes the steps to analyze the cost statistics of a unprofitable firm and make suitable recommendations. Report and calculations are described in about 250 words.

Solution Preview

Solution:

The objective of every firm is to maximize its profits. In case firm is making loss, it will try to minimize its losses.

In the given case, let us analyze firm's variable costs.

Number of workers employed=50000
Labor costs=Number of workers employed*wage rate=50000*80=$4000000
Other variable costs=$400000
Total Variable Costs=$4000000+$400000=$4400000
Total output=200000 units
Average Variable ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
Recent Feedback
  • "Thank you"
  • "Really great step by step solution"
  • "I had tried another service before Brain Mass and they pale in comparison. This was perfect."
  • "Thanks Again! This is totally a great service!"
  • "Thank you so much for your help!"
Purchase this Solution
Free BrainMass Quizzes
Transformational Leadership

This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.

Balance Sheet

The Fundamental Classified Balance Sheet. What to know to make it easy.

Basic Social Media Concepts

The quiz will test your knowledge on basic social media concepts.

Operations Management

This quiz tests a student's knowledge about Operations Management

Change and Resistance within Organizations

This quiz intended to help students understand change and resistance in organizations

View More Free Quizzes
Related BrainMass Solutions

  • Analyzing Production: Continue or Discontinue Operations?

    324582 Analyzing Production: Continue or Discontinue Operations? You've been hired as a managing consultant by an unprofitable firm to determine whether it should shut down its operation.

  • Production and Cost

    263378 Production and Cost You've been hired by an unprofitable firm to determine whether it should shut down its unprofitable operation. The firm currently uses 70,000 workers to produce 300,000 units of output per day.

  • Should the company shut down?

    I need to determine if an unprofitable firm should shut down its unprofitable operation.

  • Foundations of Microeconomics: Consumers and Firms

    194023 Foundations of Microeconomics: Consumers and Firms You've been hired by an unprofitable firm to determine whether it should shut down its unprofitable operation.

  • produce in the short run

    63475 Foundations of Microeconomics: Consumers and Firms You've been hired by an unprofitable firm to determine whether it should shut down its unprofitable operation. The firm currently uses 70 workers to produce 300 units of output per day.

  • unprofitable firm

    299100 You've been hire by an unprofitable firm to determine whether it should shut down The firm currently uses 50,000 workers to produce 200,000 units of output per day.

  • Ananlyzing various costs of an unprofitable firm

    275548 Shut down point You've been hired by an unprofitable firm to determine whether it should shut down its unprofitable operation. The firm currently uses 70,000 workers to produce 300,000 units of output per day.

  • You've been hired as a managing consultant by an unprofitabl

    407015 You've been hired as a managing consultant by an unprofitable firm to determine whether it should shut down its operation. The firm currently uses 70 workers to produce 300 units of output per day.

  • study of average variable cost, fixed cost and production

    10646 Economics case You've been hired by an unprofitable firm to determine whether it should shut down its unprofitable operation. The firm currently uses 70 workers to produce 300 units of output per day.

View More Related Solutions