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Foundations of Microeconomics: Consumers and Firms

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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 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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Solution provided by:
Gaurav Agarwal, MS
Education
  • BE, Bangalore University, India
  • MS, University of Wisconsin-Madison
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