An unprofitable firm has hired me to determine whether they should shut down there unprofitable operation or not. There are currently 70 workers at the firm that produce 300 units of output per day at the price of $30 per unit. Their workers daily wage is $100; the cost of other variables inputs is $500 per day and the firms fixed cost are unknown.
At the rate of $30 per unit X 300 units of output per day the firm's total revenue is $9,000. The $9000 dollars is the benefit of operating the facility, however the cost of operating the facility is 70 workers X $100 wages per day, $7,000 and the cost of other variable inputs is $500 per day for a total operating cost of $7,500 per day. Because the firm's revenue exceeds the operating cost it is my recommendation the firm should continue to operate at a loss.© BrainMass Inc. brainmass.com March 4, 2021, 6:03 pm ad1c9bdddf
Your calculation is correct and I've attached two graphs to illustrate the shut-down decision:
Average Fixed Cost (AFC) = fixed cost per day
Average Variable Cost (AVC) = ...