# Production and Perfect Competition

ECON220

The firm currently uses 50,000 workers to produce 200,000 units of output per day. The daily wage per worker is $80, and the price of the firm’s output is $25. The cost of other variable inputs is $400,000 per day. Assume that total fixed cost equals $1,000,000. Calculate the values for the following four formulas: •Total Variable Cost = (Number of Workers * Worker’s Daily Wage) + Other Variable Costs •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 •Worker Productivity = Units of Output per Day / Number of Workers

Calculations: Total fixed cost equals $1,000,000

TVC= (number of workers * worker’s daily wage) + other variable costs TVC= (50,000* 80)+ 400,000

TVC= (4,000,000) + 400,000

TVC= $4,400,000

AVC= total variable cost/ units of output per day

AVC=4,400,000/200,000

AVC=22

ATC= (total variable cost+ total fixed cost) / units of output per day ATC= (4,400,000+1,000,000)/200,000

ATC= 5,400,000/200,000

ATC= 27

WP= units of output per day/ number of workers

WP= 200,000/50,000

WP=4

Then, assume that total fixed cost equals $3,000,000, and recalculate the values of the four variables listed above.

Calculations: Total fixed cost equals $3,000,000

TVC= (number of workers * worker’s daily wage) + other variable costs TVC= (50,000* 80)+ 400,000

TVC= (4,000,000) + 400,000

TVC= $4,400,000

AVC= total variable cost/ units of output per day

AVC=4,400,000/200,000

AVC=22

ATC= (total variable cost+ total fixed cost) / units of output per day ATC= (4,400,000+3,000,000)/200,000

ATC= 7,400,000/200,000

ATC= 37

WP= units of output per day/ number of workers

WP= 200,000/50,000

WP=4

For both cases, calculate the firm’s profit or loss.

Total Revenue= price* quantity

TR= 25* 200,000

TR=5,000,000

So in order to get the profit or loss, we need to use the following...

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