Asked by Sheana Serena on Jul 02, 2024
Verified
A firm wishes to shut down an office and fire 100 employees.The company will save $3000 per month per employee.It is estimated that each employee contributes $4,100 to the company.The firm rents office space for this group of employees at $1500.What should the company do?
A) Fire the employees and save $1500 on rent
B) Not fire the employees keeping them generates a profit of $1100 per employee
C) Not fire the employees since keeping them generates a profit of $1085 per employee
D) None of the above
Office Space
Refers to the premises where commercial and administrative work is conducted, often leased or bought by businesses.
Employees
Individuals hired by a business or organization to perform specific duties in exchange for compensation.
Rent
A periodic fee paid for the use of property or land.
- Identify and discuss the principle of opportunity cost in the context of making informed decisions.
- Comprehend the function of opportunity costs in the computation of economic gains.
Verified Answer
SS
Suriya sakthi8 days ago
Final Answer :
C
Explanation :
If the firm fires the 100 employees, they will save $3000 per month per employee which equals $300,000. However, each employee contributes $4,100 to the company, which amounts to $410,000. Therefore, the company will lose $110,000 if they fire the employees.
Additionally, the firm must pay $1500 for the rent of the office space. Therefore, the net loss will be $111,500.
On the other hand, keeping the employees generates a profit of $4,100 - $3,000 - $1,500 = $600 per employee per month. Therefore, the total profit generated by the 100 employees is $60,000 per month, which is a profit of $1085 per employee per month. Therefore, it is best for the company not to fire the employees and keep the office running.
Additionally, the firm must pay $1500 for the rent of the office space. Therefore, the net loss will be $111,500.
On the other hand, keeping the employees generates a profit of $4,100 - $3,000 - $1,500 = $600 per employee per month. Therefore, the total profit generated by the 100 employees is $60,000 per month, which is a profit of $1085 per employee per month. Therefore, it is best for the company not to fire the employees and keep the office running.
Learning Objectives
- Identify and discuss the principle of opportunity cost in the context of making informed decisions.
- Comprehend the function of opportunity costs in the computation of economic gains.