The firm currently uses 50,000 workers to produce 200,000 units of output per day. The daily wage...

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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. Assume that total fixed cost equals $1,000,000.
	
Document Preview: Assignment Type: Individual Project   Deliverable Length: 2 - page Report    Points Possible: 150   Due Date: 11/20/2012 11:59:59 PM  CT    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. Assume that total fixed cost equals $1,000,000. Calculate the values for the following four formulas:Total Variable Cost = (Number of Workers * Worker’s Daily Wage) + Other Variable CostsAverage Variable Cost = Total Variable Cost / Units of Output per DayAverage Total Cost = (Total Variable Cost +Total Fixed Cost) / Units of Output per DayWorker Productivity = Units of Output per Day / Number of Workers Then, assume that total fixed cost equals $3,000,000, and recalculate the values of the four variables listed above. For both cases, calculate the firm’s profit or loss. For both sets of calculations, compare the firm’s output price and the calculated average variable cost and average total cost. Should the firm shutdown immediately when the total fixed cost equals $1,000,000? Should the firm shut down immediately when the total fixed cost equals $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? To calculate the number of workers to be laid off, divide the loss for the two situations by the daily wage per worker. Given a lower number of employees now working at the company, what is the change in worker productivity? Is the change in worker too 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 breakeven state? Provide a two to four page report to management of the firm that discusses what should be done. Be sure to show...

David · Accepted Answer

This is perfectly competitive market. A perfectly competitive market is market characterized by large 
number of buyers, large number of sellers with each having very small share of the market, homogeneous 
products, free entry and exit, perfect information and perfectly mobile resources.  
Calculations; 
Number of worker hired = 50000 
Units produced per day = 200000 
Wage = $80 and price of output = $25 
Other variable cost = $400000 
When fixed cost = $1000000, we can derive Total Variable Cost, Average Variable Cost, Average Total 
Cost and Worker Productivity as follows; 
Total Variable Cost = (Number of Workers * Worker’s Daily Wage) + Other Variable Costs = 
50000*80+400000=$4400000 
Average Variable Cost = Total Variable Cost / Units of Output per Day = 4400000/200000 = 22 
Average Total Cost = (Total Variable Cost +Total Fixed Cost) / Units of Output per Day = 
(4400000+1000000)/200000 = $27 
Worker Productivity = Units of Output per Day / Number of Workers = 200000/50000 = 4 
With fixed cost = $3000000, Total Variable Cost, Average Variable Cost and Worker Productivity will 
remain the same but Average Total Cost will be given by;

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...

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