Production and Competition IP 3
Production and Competition
First scenario is Total Fixed Cost is equal to $1M
The Total Variable Cost = $4.4M $4M for wages (50,000 workers x $80 per worker) plus $400,000 other variable inputs Actual Value Cost = $22 (TVC of $4.4M divided by 200,000 units) Average Variable Cost is equal to $27 (TVC $4.4M + TFC $1M divided by 200,000 units) Productivity = 4 (200,000 units that are divided by 50,000 workers) The profit and loss = $400K loss I calculated the total revenue of $200K times the $25 price which equals $5M subtracted the total cost of $5.4M.
The next value Total Fixed Cost is equal to $3M The Total value cost remained at $4.4M and the Actual Value Cost remained at $22 so Actual Total Cost is equal to $4.4MTotal value Cost and $3M Total Fixed Cost is then divided by 200,000 units = $37 The worker competence remained at 4 so the profit and loss is equal to $2.4M
which is a loss. Total cost of $7.4 M and the proceeds remained at $5M.
The shutdown rule for a company is that if the variable costs cannot be covered from the revenue received from a good or service, the construction must cease. For the first case, in order to break even, the employer needs to lay off 5,000 people which would leave 45,000 workers. The 400,000 loss is divided by the $80 per hour. Which would increase productivity when you divide the 200, 000 by 45,000 which equals by 4.4 instead of 4, an 11% increase and more likely to occur. In the second case, the employer should lay off 3,000 workers which would leave 20,000 people. The $2,400,000 loss is divided by the $80 per employee to get this number.