Production and Perfect Competition

Production and Perfect Competition
ECON220

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.
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

Calculations: Total fixed cost equals $1,000,000

TVC= (number of workers * worker’s daily wage) + other variable costs
TVC= (50,000* 80)+ 400,000
TVC= (4,000,000) + 400,000
TVC= $4,400,000

AVC= total variable cost/ units of output per day
AVC=4,400,000/200,000
AVC=22

ATC= (total variable cost+ total fixed cost) / units of output per day
ATC= (4,400,000+1,000,000)/200,000
ATC= 5,400,000/200,000
ATC= 27

WP= units of output per day/ number of workers
WP= 200,000/50,000
WP=4

Then, assume that total fixed cost equals $3,000,000, and recalculate the values of the four variables listed above.

Calculations: Total fixed cost equals $3,000,000
TVC= (number of workers * worker’s daily wage) + other variable costs
TVC= (50,000* 80)+ 400,000
TVC= (4,000,000) + 400,000
TVC= $4,400,000

AVC= total variable cost/ units of output per day
AVC=4,400,000/200,000
AVC=22

ATC= (total variable cost+ total fixed cost) / units of output per day
ATC= (4,400,000+3,000,000)/200,000
ATC= 7,400,000/200,000
ATC= 37

WP= units of output per day/ number of workers
WP= 200,000/50,000
WP=4

For both cases, calculate the firm’s profit or loss. Total Revenue= price* quantity
TR= 25* 200,000
TR=5,000,000

So in order to get the profit or loss, we need to use the