Purchase Solution

Ananlyzing various costs of 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 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 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 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.

Purchase this Solution
Solution Summary

Solution describes the methodology to determine whether an unprofitable firm should continue to operate or it should shut down its operations.

Solution Preview

Solution:

Every firm tends to maximize its profits from its operations. In case firm is making loss, it will try to minimize its losses.

Let us analyze firm's various costs in the given case,

Number of workers employed=70,000
Labor costs=Number of workers employed*wage rate=70000*100=$7,000,000
Other Daily variable costs=$500,000
Total Daily Variable Costs=$7000000+$500000=$7,500,000
Total Daily output=300,000 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
Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

View More Free Quizzes
Related BrainMass Solutions

  • 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 determining if an unprofitable firm should shut down its unprofitable operation. The firm currently uses 70,000 workers to produce 300,000 units of output per day.

  • Analyzing an unprofitable firm

    240096 Economics of unprofitable firm 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.

  • 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.

  • 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.

  • 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.

  • Accuracy of ABC Systems and Traditional Costing Systems

    What is an ABC System? The ABC system that identifies the various activities performed in a firm and uses multiple cost drivers (volume and non-volume based cost drivers) to assign overhead costs (or indirect costs) to products.

  • Elasticity and Cost Concepts

    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.

  • Economic Analysis: Should the Firm Shut Down?

    215215 Determining if a Firm Should Shut Down Please see attachment. You have been hired by an unprofitable firm to determine whether it should shut down its unprofitable operation.

View More Related Solutions