Should a firm shut down its unprofitable operation. Firm uses 70,000 workers to produce 300,000 units of output per day. Daily wage is $100 p/worker dn price of firms output is $30. Other variable inputs is $500,000 p/day. Do not know the firms' fixed cost, but it is high enough that the firms total costs exceed its total revenue. I don't know how to calculate this. Please help.
To determine whether a firm should shut down its unprofitable operation, you need to compare the costs and revenues associated with running that operation.
First, let's calculate the firm's total variable cost (TVC). In this case, the variable costs include the daily wages of the workers and other variable inputs. So we have:
TVC = (Workers' daily wage) * (Number of workers) + (Other variable inputs)
TVC = ($100/worker) * (70,000 workers) + ($500,000/day)
Next, let's calculate the firm's total revenue (TR). We know that the firm produces 300,000 units of output per day, and the price of each unit is $30. So we have:
TR = (Price per unit) * (Number of units)
TR = ($30/unit) * (300,000 units)
Now, the firm is unprofitable if its total costs exceed its total revenue. So we need to compare the total cost (TC) and total revenue (TR).
TC = TVC + fixed costs
Since we don't know the firm's fixed costs, we cannot calculate the total costs directly. However, we know that the firm's total costs exceed its total revenue. So we can set up the following inequality:
TC > TR
TVC + fixed costs > TR
Plug in the values we have:
TVC + fixed costs > TR
(TVC) + fixed costs > (TR)
(TVC) + fixed costs > ($30/unit * 300,000 units)
(TVC) + fixed costs > ($9,000,000)
Now, if the firm's total costs (TVC + fixed costs) are greater than $9,000,000, then the firm should consider shutting down its unprofitable operation.
Note: It's important to consider other factors like the firm's long-term prospects, potential for future profitability, and strategic importance of the operation before making a decision to shut it down.