A Firm Uses 50,000 Workers To Produce

Solution Here in the first case total fixed cost equals 1,000,000. Total Variable Cost Wages Other variable inputs 50,00080 400,000 4,400,000 Average Variable Cost Total variable cost/ Number of units 4,400,000/200,000 22 ATC (Total variable cost Total fixed cost)/Number of units (4,400,000 1,000,000)/200,000 27 Worker productivity Number of units/ Number of workers 200,000/50,000 4 Profit/Loss Total revenue Total cost 200,00025 - 5,400,000 (400,000) Here in the second case total fixed cost equals 3,000,000. Total Variable Cost Wages Other variable inputs 50,00080 400,000 4,400,000 Average Variable Cost Total variable cost/ Number of units 4,400,000/200,000 22 ATC (Total variable cost Total fixed cost)/Number of units (4,400,000 3,000,000)/200,000 37 Worker productivity Number of units/ Number of workers 200,000/50,000 4 Profit/Loss Total revenue Total cost 200,00025 - 7,400,000 (2,400,000) The shutdown rule states that when a firm can cover its total variable cost till some level of production in the short run, it should continue to operate. Fixed costs are not relevant in the short run because they are considered as sunk costs. In both the cases, the firm receives 25 including variable costs of 22 per unit, so it can cover the variable costs, hence it should not shut down immediately in either