# Production and Perfect Competition

Topics: Costs, Variable cost, Fixed cost Pages: 4 (837 words) Published: March 11, 2012
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...