XYZ company cost function for the next four months is C =500,000 + 5Q
B, what would be the company cost if it decides to shutdown operations for the next four months ?
C, if, because of strike ,the most the company can produce is br 100,000 units should it shutdown ? Why or why not?
B. If the company decides to shut down operations for the next four months, the cost will still be 500,000 as it represents the fixed cost of running the business.
C. If the company can only produce a maximum of 100,000 units due to a strike, it should compare the cost of producing those units with the cost of shutting down operations.
The cost of producing 100,000 units would be:
C = 500,000 + 5(100,000) = 1,000,000
If the company's revenue from selling those 100,000 units is less than 1,000,000, it may be better to shut down operations. However, if the revenue is greater than 1,000,000, it would be better to continue production despite the lower output due to the strike.
A. If the company decides to shutdown operations for the next four months, the production quantity (Q) would be zero.
Therefore, substituting Q = 0 into the cost function C = 500,000 + 5Q, we get:
C = 500,000 + 5(0)
C = 500,000 + 0
C = 500,000
Hence, the company cost would be 500,000 if it decides to shutdown operations for the next four months.
B. If the most the company can produce due to a strike is 100,000 units, we can substitute Q = 100,000 into the cost function C = 500,000 + 5Q to determine the cost:
C = 500,000 + 5(100,000)
C = 500,000 + 500,000
C = 1,000,000
Therefore, the company cost would be 1,000,000 if it produces 100,000 units.
Whether or not the company should shut down depends on comparing this cost with the alternative costs. If the cost of producing 100,000 units is higher than the benefits or expected revenue from selling those units, then it may be more economical for the company to shutdown. On the other hand, if the revenue from selling those units exceeds the cost, it would be more beneficial for the company to continue production.