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Q: Umprofitable firm / Unprofitable operation ( Answered ,   1 Comment )
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 Subject: Umprofitable firm / Unprofitable operation Category: Business and Money > Economics Asked by: onalyse57-ga List Price: \$20.00 Posted: 17 Sep 2006 14:53 PDT Expires: 17 Oct 2006 14:53 PDT Question ID: 766130
 ```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```
 onalyse57-ga rated this answer: and gave an additional tip of: \$10.00 `This was great the information was clear and understandable Thank you`
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