Average Cost and Veriable Cost

About the firm:

Number of workers: 50,000

Daily wage per worker: $80

Production: 200,000 units of output per day

Price of the firm’s output is $25 each unit

Cost of other variable inputs is $400,000 per day.

Scenario #1

Assume that total fixed cost equals $1,000,000. 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 = _____

•Profit or Loss = _____

Scenario #2

Assume that total fixed cost equals $3,000,000, and recalculate the values:

•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 = _____

•Profit or Loss = _____

Analysis:

Scenario #1: Compare the firm’s output price and the average variable cost and average total cost.

· Output Price =

· Average Variable Cost =

· Average Total Cost =

...