The Frequency of Breakdown of a Piece of Equipment Per

question 19

Essay

The frequency of breakdown of a piece of equipment per month is shown in the table.The cost of a breakdown is $1,000 and the cost of preventive maintenance is $2,000 per month.Assume that the equipment breakdown can be avoided if preventive maintenance is performed.Should the manager use preventive maintenance,or would it be better to fix the equipment when it breaks down?

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Definitions:

Equilibrium Price

The price at which the quantity of a good or service demanded equals the quantity supplied, resulting in market balance.

Marginal Cost

The added total cost resulting from the manufacture of one more unit.

Producer Surplus

The difference between what producers are willing to accept for a good versus what they actually receive, often represented as the area above the supply curve and below the equilibrium price.

Output Tax

A tax imposed based on the quantity of goods or services produced.