Production and Perfect Competition

In the first calculation, the total fixed costs = $1,000,000 and the total variable costs equals to $4.4 million, with four million for wages and 50,000 workers multiplied by $80 per worker, plus $400,000 of other variable inputs. The average variable cost equals to $22 million, with total variable costs of $4.4 million divided by 200,000 units. Worker productivity equals to 4, with 200,000 units of output divided by 50,000 workers. The loss is $400,000, with total revenue of 200,000 units of output time’s $25 price, equals to five million minus total cost of $5.4 million. The total cost can be calculated by multiplying the average total cost by 200,000 units of output, or adding the total variable cost to the total fixed costs. For the second calculation, the total fixed cost equals three million. The total variable cost has not changed, still at $4.4 million and the average variable cost will remain at $22. The average total cost equals to $37, since $4.4 total variable costs plus the $3 million of total fixed cost will be divided by 200,000 units of output per day. Worker productivity will stay at four and the loss will be $2.4 million, with total revenue remaining at $5 million and total cost equals $7.4 million. The shutdown rule is that if the firm can cover total variable costs at a certain level of production in the short run, it might keep operating. Fixed costs are not important in the short run because they are sunk costs. Either way, the company will receive $25 with variable costs of $22 per unit of output, so it can cover variable costs. It should not shut down when using either calculation. The break even number of workers using the first set of calculations is a $400,000 loss divided by $80 per worker, with laid off workers at 5,000, leaving employed workers at 45,000. Using the second set of