Assignment:
1-2 pages
Details: You've been hired by an unprofitable firm to determine whether it should shut down its unprofitable operation.
The firm currently uses 70,000 workers to produce 300,000 units of output per day. The daily wage (per worker) is $100, and the price of the firm's output is $30. The cost of other variable inputs is $500,000 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.
Provide a 1-2 page report to management of the firm as to whether or not it should continue to operate at a loss? Be sure to show your work to support the decision you outlined in your report.
IP: choose Q = 300,000 and continue operations or choose Q =0, where Q=0 means "shut down". This decision for this IP is considered a short run decision. This IP does not consider the option of closing and dissolving the business permanently, but rather which output to choose: Q =300,000 or Q =0.(Note that shut down is not bankruptcy; this IP does not concern bankruptcy.) Explain and support your answer. Note that this IP does NOT ask you to "determine how to make this business more profitable or how to lower the costs or how to earn more revenue." You must select Q =0 or Q= 300,000, and provide the reason.