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    Economic Analysis: Should the Firm Shut Down?

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    You have 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. The daily wage (per worker) is $100, and the price of the firm's output is $30. The cost of other variable inputs is $500,000 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 its total revenue.

    Provide a 1-2 page 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.

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    https://brainmass.com/economics/factors-of-production/firm-shut-down-215215

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    Solution:

    In order to determine whether a firm should shut down or not, we look at the contribution margin of the firm at the production levels. Fixed costs are not considered as fixed costs are sunk costs ...

    Solution Summary

    Provides an explanation how to decide whether a firm should shut down or not.

    $2.19