Jul 12, 2017 Others

Short Run Shut Down Rule

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Short Run Shut Down Rule

INSTRUCTIONS:

A firm currently uses 40,000 workers to produce 180,000 units of output per day. The daily wage per worker is $100, and the price of the firm`s output is $28. The cost of other variable inputs is $500,000 per day. (Note: Assume that output is constant at the level of 180,000 units per day.)



Assume that total fixed cost equals $1,200,000. Calculate the values for the following four formulas:

•Total Variable Cost = (Number of Workers x Worker’s Daily Wage) + Other Variable Costs 

•Total Costs = Total Variable Costs + Total Fixed Costs 

•Total Revenue = Price * Quantity 

•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 

Complete the following: 

•Calculate the firm’s profit or loss. Is the firm making a profit or a loss? 

•Explain the Short Run Shut Down Rule. Should this firm shut down? Please explain. 



Provide a report to the management of the firm that discusses what should be done. 



Be sure to show your work to support the decision that you outline in your report.


CONTENT:

Econ Unit 3IP Name: Institution: Solutions * Total Variable Cost= ($40,000*$100) +$500,000)= $4,500,000 * Total Costs = $4,500,000+$1,200,000=5,700,000 * Total Revenue =$28*180,000=5,040,000 * Average Variable Cost =$4,500,000/180,000=$25 * Average Total Cost = ($4,500,000+$1,200,000)/180,000=$31.667 * Firm

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