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Analyzing costs and revenues of a loss making firm

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The firm currently uses 50,000 workers to produce 200,000 units of output per day. The daily wage worker per worker is $80.00, and the price firm is $25.00. The cost of other variables input 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 cost exceeds its total revenue.

Report to mangement as to continue operation or shut down.

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Solution Summary

The solution explains the methodology to determine whether a loss making firm should continue its operations or not in the short run.

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Solution:

Number of workers employed =50000
Wage Rate= $80 per worker per day
Daily Labor costs=50000*80=$4,000,000
Other Variable Input costs per day=$400,000
Total Variable Costs per day=Daily Labor Costs+ Other ...

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
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