Individual Project (3) - Production and Perfect Competition
AIU Online

Abstract
This paper will break down a firm productivity using two different fixed cost scenarios. By calculating the value of the below formulas I will be able to determine whether or not they should shut down or stay in business with changes such as layoffs. In order to make this decision I will need to calculate the firms profit or loss, output price and average variable\total cost.

Problem:
Calculate the values for the following four formulas: ~Total Variable Cost = (Number of Workers * Worker's Daily Wage) + Other Variable Costs ~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 ~Worker Productivity = Units of Output per Day / Number of Workers

The firm currently uses 50,000 workers to produce 200,000 units of output per day. The daily wage per worker is $80, and the price of the firm’s output is $25. The cost of other variable inputs is $400,000 per day.
First scenario assuming that total fixed cost equals $1,000,000:
Second scenario assuming that total fixed cost equals $3,000,000:

Individual Project (3) - Production and Perfect Competition

Using the total variable cost of one million and the following calculation end up with total variable cost of $4.4mm (50,000 workers x $80 per worker) plus $400,000 other variable inputs, average variable cost of $22 (TVC of $4.4mm divided by 200,000 units), average total cost of $27 (TVC $4.4mm + TFC $1mm divided by 200,000 units) and worker productivity of 4 (200,000 units per day divided by 50,000 workers). Using the same calculation this time with a three million variable cost we end up with same total variable coast of $4.4mm and average variable coast of $22. However