A firm currently uses 40,000 workers to produce 180,000 units of output per day.

Question

Assume the following:
the daily wage per worker is $100
the cost of other variable inputs is $500,000 per day
the price of the firm's output is $28
the firm’s output is constant at the level of 180,000 units per day
total fixed cost equals $1,200,000

A firm currently uses 40,000 workers to produce 180,000 units of output per day.
Assume the following:
the daily wage per worker is $100
the cost of other variable inputs is $500,000 per day
the price of the firm's output is $28
the firm’s output is constant at the level of 180,000 units per day
total fixed cost equals $1,200,000

STEP 2: Based on the information in Step 1, calculate the following. Use the formulas provided, and show ALL work (5 points)

Total Variable Cost = (Number of Workers x Worker's Daily Wage) + Other Variable Costs (5 points)

Total Costs = Total Variable Costs + Total Fixed Costs (5 points)

Answer 1

To calculate the required values based on the provided information, we can follow the formulas given step by step.

Step 1: Calculate Total Variable Cost

Total Variable Cost (TVC) is composed of the cost of labor (number of workers multiplied by daily wage per worker) and other variable costs. The formula is:

\[ \text{Total Variable Cost} = (\text{Number of Workers} \times \text{Worker's Daily Wage}) + \text{Other Variable Costs} \]

Given Data:

• Number of Workers = 40,000
• Worker's Daily Wage = $100
• Other Variable Costs = $500,000

Now, let's plug in the values:

\[ \text{Total Variable Cost} = (40,000 \times 100) + 500,000 \]

Calculating the labor cost:

\[ 40,000 \times 100 = 4,000,000 \]

Now add the other variable costs:

\[ \text{Total Variable Cost} = 4,000,000 + 500,000 = 4,500,000 \]

Step 2: Calculate Total Costs

Total Costs (TC) is the sum of total variable costs and total fixed costs. The formula is:

\[ \text{Total Costs} = \text{Total Variable Costs} + \text{Total Fixed Costs} \]

Given Data:

• Total Fixed Costs = $1,200,000
• Total Variable Costs (calculated above) = $4,500,000

Now, plug in the values:

\[ \text{Total Costs} = 4,500,000 + 1,200,000 \]

Calculating the total costs:

\[ \text{Total Costs} = 4,500,000 + 1,200,000 = 5,700,000 \]

Summary of Results:

1. Total Variable Cost = $4,500,000
2. Total Costs = $5,700,000

These calculations outline all the work based on the provided formulas and information.