Production and Perfect Competition
Unit 3 Individual Project
* Total Variable Cost (TVC) = (Number of Workers * Worker’s Daily Wage) + Other Costs
Total Variable Cost is 4.4 million = (50,000 * 80) + 400,000 * Average Variable Cost (AVC) = Total Variable Cost / Units of Output per Day AVC $22 is the Average Variable Cost per Unit = (4.4 million / 200,000 units)
* Average Total Cost (ATC) = (Total Variable Cost +Total Fixed Cost) / Units of Output per day. $27 is the Average Total Cost per unit = (4.4 million + 1 million) / 200,000 units * Worker Productivity = Units of Output per Day / Number of Workers 4 units is the average of what a worker produces everyday = (200,000 / 50,000)
$400,000 loss = (200,000 * $25) = 5 mil 5.4 mil
In this scenario the profit/loss = $400,000
PRODUCTION AND PERFECT COMPETITION
The second scenario the TFC (Total Fixed Cost) = $3M
The TVC (Total Variable Cost) stayed the same/unchanged at 4.4 million The AVC (Average Variable Cost) also stayed the same at $22
The ATC is $37 = (4.4mil(TVC) + 3mil (TFC) / 200,000 unit)
The productivity of the workers was unchanged at 4
The Profit/ Loss = $2.4mil (total revenue that is left is $5M; total cost = $7.4)
This firm should not shut down for the fact that the firm it can cover the variable cost at some level of production in the short term so it should continue with its operations. In both cases , the firm receives $25 with a variable costs of $22 per unit, so it can cover the VC but in any case it should not shut down immediately.
In the first case $400,000 loss / $80 per worker, which is 5,000 then the firm should lay off 5,000 workers leaving a workforce of 45,000.
In the second case $2.4 Million loss / $80 per worker, which is 30,000 so then the firm should lay off 30,000 workers leaving a workforce of 20,000.
This leads us to believe that production remains at 200,000 units per day which is unlikely but one...
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