Food-Processing-Plant-Design-layout

Food Processing Plant Design & layout
D=0
The situation, which confronts the analyst is shown graphically in Fig 11.4, in which it is
assumed that
a - v ≥ 0
Fig 11.4 A profit - Loss function
An important -principle emerges here if one observes that at this level of production,
marginal cost is equal to marginal revenue. For
Thus one might formulate a decision rule which says, “to maximize profit, increase
production as long as marginal revenue is greater than marginal cost, but stop when the
two are equal”. Alternatively, “to maximize profit, increase production until the revenue
from the last unit of product is just equal to the cost of producing it."
11.3 Break-even and shutdown Points
From Fig 11.4 certain other insights may be obtained. There are two points at which total
revenue is equal to total cost, and thus profit is zero. These points are called the break- even
points. Between the break-even points the enterprise will make a profit, but outside of these
it will suffer a loss. The lower or left-hand break-even point is of special interest to the
analysts since this is the level of, production that must be reached to get the enterprise out
of the red. Many of the decisions of the enterprise about its activities depend heavily on the
answer to the question; "Will the venture be able to operate at or above its break-even
point?"
Another decision that may confront the analyst is whether or not to cease production
entirely when conditions force volume down below the lower break- even point. This
decision might be studied using the model, although this is not essential. Suppose the
analyst finds that the enterprise is forced to produce at some level lower than the breakeven
point; one then has the following alternatives:
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