Production Efficiency

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Economies Of Scale

    The cost advantage that arises with increased output of a product. ...
  2. Mass Production

    The manufacturing of large quantities of standardized products, ...
  3. Capacity Requirements Planning ...

    An accounting method used to determine the available production ...
  4. Materials Requirement Planning ...

    One of the first software based integrated information systems ...
  5. Guns And Butter Curve

    The classic economic example of the production possibility curve, ...
  6. Production Possibility Frontier ...

    A curve depicting all maximum output possibilities for two or ...
Related Articles
  1. Economics Basics
    Economics

    Economics Basics

  2. Understanding Supply-Side Economics
    Economics

    Understanding Supply-Side Economics

  3. Explaining The World Through Macroeconomic ...
    Options & Futures

    Explaining The World Through Macroeconomic ...

  4. What Are Economies Of Scale?
    Economics

    What Are Economies Of Scale?

comments powered by Disqus
Hot Definitions
  1. Last In, First Out - LIFO

    An asset-management and valuation method that assumes that assets produced or acquired last are the ones that are used, sold ...
  2. Ghosting

    An illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. ...
  3. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  4. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  5. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  6. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
Trading Center