This problem deals with the estimation of average variable costs and average total costs, given two hypothetical and different fixed costs for a single firm. Comparing the two cost estimations, this problem then estimates optimal employment levels for short-run productivity to determine how many employees must be laid off in order for the firm to break even and whether remaining employees can increase production levels so as to maintain current output levels for the firm.
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 do not know the firm's fixed cost, you know that it is high enough that the firm's total costs exceed