The firm currently uses 70,000 workers to produce 300,000 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 $500,000 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 revenu,show your work
What I don't see is a question. What are you having trouble with? What do you think the answer is?
Report whether or not it should continue to operate at a loss? Be sure to show your work, this is where I’m having the problem, how do you calculate to figure out the answer? Which would be the lost? the way is see it their would be a $42,000.00 lost per month. Not sure
Ok, the firm's total daily revenue is 30*300,000 = 9,000,000. The firms total daily VARIABLE costs are 100*70,000 + 500,000 = 7,500,000.
So revenue less costs is 9,000,000-7,500,000 = 1,500,000
Now then, you are given that you don't know the level of fixed costs, except that total costs exceed total revenue. So, daily fixed costs must be 1,500,000 or more.
Even though the firm is losing money, in the short run, the firm should continue to operate, as revenue exceeds variable costs.
Thats it, that's all there is to it.
I hope this helps.
Thanks You
To show the work, we need to calculate several components: total variable cost, total revenue, and then compare them to determine if the firm's total costs exceed its total revenue.
1. Total Variable Cost (TVC):
TVC is the cost of all variable inputs used in production. Here, the only variable input mentioned is the daily wage for 70,000 workers, which is $100 per worker.
TVC = Daily wage per worker * Number of workers
TVC = $100 * 70,000 = $7,000,000
2. Total Revenue (TR):
TR is the revenue generated from selling the firm's output. Given that the firm produces 300,000 units of output per day and the price per unit is $30:
TR = Number of units of output * Price per unit
TR = 300,000 * $30 = $9,000,000
3. Total Cost (TC):
TC is the sum of total variable cost (TVC) and total fixed cost (TFC).
TC = TVC + TFC
We don't have the information about total fixed cost, but we know that the firm's total costs exceed its total revenue. Therefore, we can conclude that the total fixed cost is high enough to make this inequality true:
TC > TR
$7,000,000 + TFC > $9,000,000
Unfortunately, without additional information, we can't determine the exact value of total fixed cost (TFC). However, we know it is high enough to make the inequality hold, indicating that the firm is incurring losses.