econ ip 3 Essay

Submitted By economics220
Words: 553
Pages: 3

XYZ CORPORATION
ECON 220 -1201A-42- IP 2
Darryl Gamble
AIU

Abstract
I have been asked to do a special report on the feasibility of XYZ Corporation remaining open even though they are losing money. Also discussed will be the point where XYZ Corporation should either downsize or completely shut down. I have taken the liberty of putting together a chart which will show you the breakdown at two different levels of fixed costs.

At 1,000,000 Fixed Costs
Total variable cost $4,400.00
Total cost per day $5,400.00
Average variable cost $22.00
Average total cost $27.00
Worker productivity 4
Loss ($2.00 per day per unit) $400.00
The number of workers that need to be laid off 5,000
New number of employees 45,000
New number of products being made at current productivity 180,000
Number of produces each employee needs to make to equal previous output $4.44 per day
Total number of products that must be made to break even 216,000 per day
Number of products each employee would need to produce to break even
(total cost/number of employees) $25.00 = 4.8

At 3,000,000 Fixed Costs
Total variable cost $4,400.00
Total cost per day $7,400.00
Average variable cost $22.00
Average total cost $37.00
Worker productivity 4
Loss ($12.00 per day per unit) $2,400,000
The number of workers that need to be laid off 30,000
New number of employees 20,000
New number of products being made at current productivity 80,000
Number of produces each employee needs to make to equal previous output 10 per day
Total number of products that must be made to break even 296,000 per day
Number of products each employee would need to produce to break even
(total cost/number of employees) $25.00 = 14.8

It is my opinion that neither scenario would cause the firm to shut down. Both show that the revenue of the firm would still cover the variable costs as well as some of the fixed costs so even though there is not a profit at this time it would cause a greater loss if it were to shut down (Krugman & Wells, 2011). With fixed costs being at $1,000,000, for the firm to break even it would have to lay off 5,000 employees. With fixed costs being…