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    Production and shut down decisions

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    The firm currently uses 50,000 workers to produce 200,000 units of output per day. the daily wage is per worker $80, and the price of the firms output is $25. The cost of other variable inputs is $4000,000 per day. Although you do not know the firm's fixed cost, you know that it is high enough that the fims total costs exceed its total revenue. Assuming that the fixed cost equals $1,000,000. here is where I am stuck and need a little help:
    Calculate the following,
    * Total Variable Cost=(Number of workers * workers daily wages)+ other variable costs
    * Average Total Cost= Total Variable cost/Units of output per day
    * Average toal cost=(total variable cost+total fixed cost)/units of output per day
    * worker productivity=Units of output per day/number of workers
    then assume the total fixed cost is $3,000,000 and reclculate the values.
    for both sets of calculations compare the firms output price and the calculated average variable cost and average cost. should the firm shut down immediately when the total fixed cost equals $1,000,000? $3,000,000?
    for one of the cases if the firm can operate at a loss in the short run, how many employees need to be laid off in order for the company to break even?What is the change in the worker productivity? is the change in worker to large, and the firm should shut down immediately? or in your opinion can the workers increase their productivity, assuming that the units of output per day remain fixed at 200,000 units, so that the firm operates at a breakdown state. provide a two to four page report to management of the firms that discusses what should be done.

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    Solution Preview

    First, the second calculation should be average variable cost, not average total cost, which is the third calculation. I also think that you meant to say that variable inputs are $400,000, not $4 million, which would be excessive.

    For fixed costs of 1,000,000, you should find the following:
    * Total Variable Cost= (50000* 80) + 400,000 =4 400 000
    * Average variable Cost= 4 400 000/200000= $22
    * Average total cost=(5 400 ...

    Solution Summary

    Production and shut down decisions. Calculation of firm revenue and costs.

    $2.19