The Average Total Cost Curves (ATC) represent five individual production plants of one company.The visual of each Plant reflects its size, capacity, and efficiency.ATC-3 is the largest plant and the most efficient as its own Average Total Cost is lower than the others. Remember, when the Demand for your product grows, you have to be able to produce it.What happens when a company starts becoming successful?How does a company keep efficiency in production.Expand to keep costs down!

The age of each plant is directly related to its construction (1-5).The efficiency of the plant is based on theATC itself.

Stage 1 and 2

These five ATC's reflect the growth and history of a company.ATC1 is the first production plant.As the product becomes popular, the firm has to produce MORE THAN20 units, driving up Average Cost.A decision in made to open a second plant, ACT 2 which is has a lower cost and larger capacity.ATC 1 will only produce up to 20 units and ACT2 will produce up to 30 units.

Stage 3

Demand forecast shows a dramatic increase insales which will cause ATC 2 to produce in diseconomies of scale.The Board decides to build a highly efficient plant, ATC 3. The Plant is very large and has scale (Economies of Scale) against the others. ATC 3 will allow massive expansion producing out to 50 units. (ATC 1=20, ACT 2=30, ATC 3=50) Each plant will mandate output to its highest level of efficiency-where ATC is lowest.

Stage 4

Demand forecast shows that sales are still growing, but not at the previous level.Plant ATC 4 is constructed. This plant is MORE efficient that ATC 1 or ATC 2, but less efficient than ATC 3. (How do I know?Where does economics of scale end on each curve?

Stage 5

Demand forecast shows that sales continue to grow at a decreased rate.Plant ATC 5 is constructed. This plant is MORE efficient that ATC 1 or ATC 2, but less efficient than ATC 3 or ATC 4.

Source: https://youtu.be/JdCgu1sOPDo

Question:

Recession!

A decline in the economy has slowed sales .As the Production Manager for the company, you are mandated to produce a "Reduction in Output" plan and state the order in which the plants are to be reduced.

Briefly discuss your shutdown plan and give evidence to support your decision.In what order are the plants to be shut down?At the Production Manager, you are need to focus on keeping the costs down.