Economics Assignment 2

Assume you have been hired as a managing consultant by a company to offer some advice that will help it make a decision as to whether it should shut down completely or continue its operations. It currently uses 100 workers to produce 6,000 units of output per month (working 20 days / month). The daily wage (per worker) is $70, and the price of the firm's output is $32. The cost of other variable inputs is $2,000 per day. You are told that the firm's fixed cost is “high enough” so that the firm's total costs exceed its total revenue. The marginal cost of the last unit is $30. (Ch 7 & 8 to solve)

Watchfuleye.com is a 10 year old company that offers surveillance products and services for daycares, adult facilities, and shopping centers. During this time, the company has established itself as a high quality provider of these systems. Though the products and services appeals to a small sector of the surveillance industry customers, the company has been able to maintain a 20% profit margin. Due to the economy, their profit margins have dropped below the breakeven point and are now considering to cease business.

Several factors are to be considered when making a decision to either cease operations or continue to push forward. First, is to perform a market analysis to determine whether or not continuing operations is feasible. “The market analysis should illustrate your industry and market knowledge as well as any of your research findings and conclusions” (“Market analysis”, 2013). The next step would be to evaluate how costs could be cut without sacrificing the quality of the product or service. Other factors to consider are:

• Can the company still be profitable by cutting productions back to 400 units per month?

• Can the workforce be reduced in order to decrease costs of labor?

• What fixed and variable costs are involved?

• Would costs be reduced if the company relocated to another within the US or other parts of the world?

Improving profit margin can...