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Economics and operations management: towards a theory of endogenous production speed

Author

Listed:
  • Philip T. Powell

    (Kelley School of Business, Indiana University, Indianapolis, IN, USA)

  • Roger W. Schmenner

    (Kelley School of Business, Indiana University, Indianapolis, IN, USA)

Abstract

A firm chooses the production speed and amount of labor that maximizes profit in a perfectly competitive market. Faster production raises management expenses and the unit cost of production mistakes. Adding workers enhances the division of labor on the production line and raises work-in-process inventory. When the division of labor is high, a rise in the wage can increase the optimal production speed and quantity of output. When price falls, optimal production speed and optimal division of labor can move in opposite directions. Output quantity can also rise, generating a downward sloping supply curve in the absence of increasing returns to scale. Copyright © 2002 John Wiley & Sons, Ltd.

Suggested Citation

  • Philip T. Powell & Roger W. Schmenner, 2002. "Economics and operations management: towards a theory of endogenous production speed," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 23(6), pages 331-342.
    • Handle: RePEc:wly:mgtdec:v:23:y:2002:i:6:p:331-342
    DOI: 10.1002/mde.1057
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    References listed on IDEAS

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    2. Christopher C. Klein, 2007. "Cost and Production Duality with Time Utilization of Capital," Working Papers 200704, Middle Tennessee State University, Department of Economics and Finance.

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