Tiger Island Fabricators, Which Builds Offshore Oil Platforms, Has Been

question 27

Essay

Tiger Island Fabricators, which builds offshore oil platforms, has been experiencing problems with its profiling machine, a computer-driven device that cuts the ends of pipe so that it can be welded to another pipe, as shown in the data below.
$$\begin{array} { | l | l | l | l | l | l | l | } \hline \text { Number of breakdowns } & 0 & 1 & 2 & 3 & 4 & 5 \\\hline \text { Breakdown frequency } & 2 & 2 & 2 & 6 & 7 & 1 \\\hline\end{array}$$
Each time a machine breaks down, the company loses about $3,000. If the company implements preventive maintenance, it will be able to reduce the number of breakdowns to one per month. Preventive maintenance costs would be $500 a month. Is preventive maintenance a cost-effective option?

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Definitions:

Output

The amount of products or services produced by a company, industry, or economic system.

Total Fixed Cost

The sum of all costs that do not change with output level, including rent, salaries, and insurance.

Short Run

A period in economic analysis during which at least one input, such as plant size or capital, is fixed, limiting the ability to adjust to demand changes.

Long Run

A period in which all factors of production and costs are variable, allowing for full adjustment to changes in the economic environment.