Production Efficiency

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DEFINITION of 'Production Efficiency'

1. An economic level at which the economy can no longer produce additional amounts of a good without lowering the production level of another product. This will happen when an economy is operating along its production possibility frontier.

2. The ability to produce a good using the fewest resources possible. Efficient production is achieved when a product is created at its lowest average total cost.

BREAKING DOWN 'Production Efficiency'

1. Production efficiency measures whether the economy is producing as much as possible without wasting precious resources. Theoretically, production efficiency will include all of the points along the production possibility frontier, but this is difficult to measure in practice.

2. Because resources are limited, being able to make products efficiently allows for higher levels of production. If the economy can't make more of a good without sacrificing the production of another, then a maximum level of production has been reached.

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