What Is a Plant in the Study of Economics?

Power plant cooling towers at sunrise.

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In the study of economics, a plant is an integrated workplace, usually all in one location. A plant generally consists of the physical capital, like the building and the equipment at a particular location that is used for the production of goods. A plant is also called a factory.

Power Plants

Perhaps the most common phrase associated with the economic understanding of the term "plant" is the power plant. A power plant, also known as a power station or generating plant, is the industrial facility involved in the generation of electrical power. Like a factory where goods are manufactured, a power plant is a physical location where utilities are generated.

Most power plants generate electricity through the burning of fossil fuels such as oil, coal, and natural gas. In light of the modern push for more renewable sources of energy, there are also plants dedicated to the generation of power through solar, wind, and even hydroelectric sources. Power plants that harness nuclear energy are a frequent subject of international discussion and debate.

The Economics of Plants

Though the word "plant" is sometimes used interchangeably with the words "business" or "firm," economists use the term strictly in relationship to a physical production facility, not the company itself. So rarely is a plant or factory the sole subject of economic study. Rather, it is generally the business and economic decisions that take place surrounding and within the plant that are the topics of interest to economists.

Taking a power plant as an example, an economist might be interested in the manufacturing economics of the power plant. This is generally a matter of costing, which involves both fixed and variable costs. In economics and finance, power plants are also considered long-lived assets that are capital intensive, or assets that require investments of large sums of money. As such, an economist might be interested in performing a discounted cash flow analysis of a power plant project. Or perhaps they are more interested in the return on equity of a power plant.

On the other hand, another economist might be more interested in the economics of plants in terms of industrial structure and organization. This might include an analysis of plants in terms of pricing decisions, industrial groupings, vertical integration, and even public policy affecting those plants and their businesses. Plants also hold relevance in an economic study as the physical centers of manufacturing, the costs of which are very much intertwined with sourcing decisions and where companies choose to set up the manufacturing portion of their business. The study of the economics of global manufacturing, for example, is of constant debate in the financial and political spheres.

In short, though the plants themselves (if understood as the physical location of manufacturing and production) are not always the primary subjects of economic study, they are at the center of real-world economic concerns.