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. Qualified Production Activities ...

    Income derived from domestic production that qualifies for reduced ...
  6. Guns And Butter Curve

    The classic economic example of the production possibility curve, ...
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. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  2. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  3. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  4. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
  5. Over The Counter

    A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" ...
  6. Earnings Before Interest After Taxes - EBIAT

    A financial measure that is an indicator of a company's operating performance. EBIAT, which is equivalent to after-tax EBIT ...
Trading Center