You've been hired by an unprofitable firm to determine whether it
should shut down its unprofitable operation. The firm currently uses
70 workers to produce 300 units of output per day. The daily wage (
per worker) is $100.00,and the price of the firm's output is $30.00.
The cost of other variable inputs is $500.00 per day. Although you
don't know the firm's fixed cost, you know that it is high enough that
the firm's total costs exceed its total revenue. This will need to be done in Excel

Hi!!


Total Variable Costs (per day):

TVC = # of workers * wage per worker + other variable inputs =
    = 70 * $100 + $500 = 
    = $7500. 


Total Revenues (per day):

TR = units of output per day * price of the firm's output =
   = $30 * 300 =
   = $9000


TR > TVC; this means that keeping the operation alive covers the
variable costs and the firm has also $1500 to cover some of its fixed
costs.
If the firm shut down its unprofitable operation it will lose the
profit of keeping the operation alive ($1500) that is now helping to
cover its fixed costs.

So although the firm is losing money as a result of the fixed costs,
in the shor-run, it will lose more money if it shuts down the
operation.


For references see the following documents:
"The Short-Run Output Decision" (Word document):
http://www.hss.iitm.ac.in/courses/debashis/Profit%20maximizing%20firm.doc

"How Firms Make Decisions: Profit Maximization" (PowerPoint presentation):
http://lilt.ilstu.edu/jepayne/eco401/handouts/ch06%20CMBA%20401.ppt


The link to the Excel file you have requested is:
http://www.geocities.com/artistaflores/UmprofitableFirm.xls


I hope this helps you. Feel free to request for a clarification if you
find something unclear before rate this answer.


Regards,
livioflores-ga

This was great the information was clear and understandable Thank you

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