You've Been Hired by an Unprofitable Firm to Determine Whether

question 55

Essay

You've been hired by an unprofitable firm to determine whether it should shut down its operation.The firm currently uses 70 workers to produce 300 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 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.You know that the marginal cost of the last unit is $30.Should the firm continue to operate at a loss? Carefully explain your answer.

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Definitions:

Discrepancy

is a lack of consistency or agreement between two or more facts, figures, or perspectives.

Desired State

The preferred condition or situation a person or organization aims to achieve in the future.

Better Value

Offers products or services that are perceived to offer superior benefits relative to their cost.

Extended Problem Solving

A purchase decision process during which the consumer devotes considerable time and effort to analyzing alternatives; often occurs when the consumer perceives that the purchase decision entails a lot of risk.