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econ220ip3

# econ220ip3 - Running head UNIT 3 IP PRODUCTION Unit 3 IP...

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Running head: UNIT 3 IP: PRODUCTION Unit 3 IP: Production and Perfect Competition <removed to preserve my anonymity> AIU Online 1

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UNIT 3 IP: PRODUCTION Abstract Production consists of a variety of processes and factors that all work together to create a finished product, often referred to as a good. The numbers of units that are produced per day are a further breakdown of the production of the good, and also require a number of factors to create the base good. Training of production staff, salary payment of those staff, repairs to production equipment, facility purchases or lease payments, and utility payments are all examples of the described factors. In any facility that wishes to remain in operation, the cost to run a day of production is required to be less than the revenue generated during that day, otherwise a general trend of loss will be established and long-term, the business will ultimately fail and need to shut down. In this paper we will outline all the calculations that can be utilized in a given scenario to determine if and when a plant should consider shutting down in a loss scenario as described above. 2
UNIT 3 IP: PRODUCTION Plant Calculations in a Loss Scenario In the scenario we will play out below, the following assumptions can be made, and utilized for the purpose of calculations: Our example firm employs 50,000 workers. They are able to produce 200,000 units per day of output. The daily wage per-worker is \$80. The price of the finished, produced product is \$25 per-unit. Variable, non-defined costs equal \$400,000 per day. Using the above assumptions to determine if a plant should either give up and shut down immediately, or continue production, we will examine two scenarios; fixed costs of \$1,000,000, and fixed costs of \$3,000,000 million in addition to the above assumptions.

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