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
4.500.000 total variable cost
5.7000.000 total cost
total revenue ?
25 average variable cost
4.5000.007 average total cost
To calculate the values for the given formulas, let's go step-by-step:
1. Total Variable Cost = (Number of Workers x Worker's Daily Wage) + Other Variable Costs
Number of Workers = 40,000
Worker's Daily Wage = $100
Other Variable Costs = $500,000 per day
Total Variable Cost = (40,000 x $100) + $500,000
Total Variable Cost = $4,000,000 + $500,000
Total Variable Cost = $4,500,000
2. Total Costs = Total Variable Costs + Total Fixed Costs
Given Total Fixed Costs = $1,200,000
Total Variable Costs (calculated in step 1) = $4,500,000
Total Costs = $4,500,000 + $1,200,000
Total Costs = $5,700,000
3. Total Revenue = Price * Quantity
Price = $28
Quantity (Units of Output per Day) = 180,000
Total Revenue = $28 * 180,000
Total Revenue = $5,040,000
4. Average Variable Cost = Total Variable Cost / Units of Output per Day
Total Variable Cost (calculated in step 1) = $4,500,000
Units of Output per Day = 180,000
Average Variable Cost = $4,500,000 / 180,000
Average Variable Cost = $25
5. Average Total Cost = (Total Variable Cost + Total Fixed Cost) / Units of Output per Day
Total Variable Cost (calculated in step 1) = $4,500,000
Total Fixed Cost = $1,200,000
Units of Output per Day = 180,000
Average Total Cost = ($4,500,000 + $1,200,000) / 180,000
Average Total Cost = $27,000,000 / 180,000
Average Total Cost = $30
So, the values for the four formulas are:
Total Variable Cost = $4,500,000
Total Costs = $5,700,000
Total Revenue = $5,040,000
Average Variable Cost = $25
Average Total Cost = $30
To calculate the values for the given formulas, we will substitute the given values into the formulas step by step.
Formula 1: Total Variable Cost = (Number of Workers x Worker’s Daily Wage) + Other Variable Costs
Given values:
Number of Workers = 40,000
Worker’s Daily Wage = $100
Other Variable Costs = $500,000
Substituting the values into the formula:
Total Variable Cost = (40,000 x $100) + $500,000
Total Variable Cost = $4,000,000 + $500,000
Total Variable Cost = $4,500,000
Formula 2: Total Costs = Total Variable Costs + Total Fixed Costs
Given values:
Total Fixed Costs = $1,200,000 (given)
Substituting the values into the formula:
Total Costs = $4,500,000 + $1,200,000
Total Costs = $5,700,000
Formula 3: Total Revenue = Price * Quantity
Given values:
Price = $28 (given)
Quantity = 180,000 (given)
Substituting the values into the formula:
Total Revenue = $28 * 180,000
Total Revenue = $5,040,000
Formula 4: Average Variable Cost = Total Variable Cost / Units of Output per Day
Given values:
Units of Output per Day = 180,000 (given)
Substituting the values into the formula:
Average Variable Cost = $4,500,000 / 180,000
Average Variable Cost = $25
Formula 5: Average Total Cost = (Total Variable Cost + Total Fixed Cost) / Units of Output per Day
Given values:
Total Variable Cost = $4,500,000
Total Fixed Cost = $1,200,000
Units of Output per Day = 180,000
Substituting the values into the formula:
Average Total Cost = ($4,500,000 + $1,200,000) / 180,000
Average Total Cost = $5,700,000 / 180,000
Average Total Cost = $31.67
Therefore, the values for the four formulas are:
Total Variable Cost = $4,500,000
Total Costs = $5,700,000
Total Revenue = $5,040,000
Average Variable Cost = $25
Average Total Cost = $31.67