microeconomics 5387547 2

A firm currently uses 40,000 workers to produce 180,000 units of output per day. The daily wage per worker is $100, and the price of the firm’s output is $28. The cost of other variable inputs is $500,000 per day. (Note: Assume that output is constant at the level of 180,000 units per day.)

Assume that total fixed cost equals $1,200,000. Calculate the values for the following four formulas:

·  Total Variable Cost = (Number of Workers x Worker’s Daily Wage) + Other Variable Costs

·  Total Costs = Total Variable Costs + Total Fixed Costs

·  Total Revenue = Price * Quantity

·  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

Complete the following:

• Calculate the firm’s profit or loss. Is the firm making a profit or a loss?
• Explain the Short Run Shut Down Rule. Should this firm shut down? Please explain.

Provide a report to the management of the firm that discusses what should be done.

 

Be sure to show your work to support the decision that you outline in your report.