.1. 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. 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 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. You know that the marginal cost of the last unit is $30. Should the firm continue to operate at a loss? Yes or No. Carefully explain your answer. (show all your calculations)© BrainMass Inc. brainmass.com October 10, 2019, 2:34 am ad1c9bdddf
The short term shut down decision is just a comparison of AVC and the price of the item. Here we have:
* Total Variable Cost= (100* 70) + 500 = 7500
Determination of a firm's shut down with marginal analysis.