i need to answer to this question but i'm wonder if i need to use the short-run cost function (C = wL * rK) of not. Can you help me ?
This is the statement :
A small business owner employs 5 workers. The annual wage bill is
$75000. The book value of the assets is
$540 000. If workers are fired, they are entitled to a legal compensation of
$30 000 each. The current market value of the assets is
$430 000. In the short run the business owner may increase production hiring additional workers or may decrease production firing workers but is not able to change their fixed assets.
If it is not necessary to use the function, the answers are :
-What is the value of the fixed costs? Value of the fixed cost =
-What is the value of the variable costs if one worker is fired?
value of the variable costs if one worker is fired =
-What is the value of the sunk costs? Value of the sunk costs =
$75000 + ($540 000 - $430 000 (depreciation)) = $185 000