Output-Flexibility and Diverse Technology

Gerald Aranoff

Scottish Journal of Political Economy, 1989, vol. 36, issue 2, 141-59

Abstract: Output-flexibility's welfare effects are analyzed in two propositions involving linear total cost curves and absolute capacity limits. This paper demonstrates that, in a setting of competitive manufacturing, the conditions for two technologies to coexist are that the other is more output-flexible, i.e., produces at a lower expected average cost when expected capacity utilization is low. Output-flexibility is illustrated by the "buy" alternative in the make-or-buy decision and the "keep" alternative in the replace-or-keep decision. The writer proposes and demonstrates an output-flexibility indicator. Copyright 1989 by Scottish Economic Society.

Date: 1989
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