Economies of Scope and Capacity Utilization

William W. Cooper, Lawrence Seiford and Kaoru Tone
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William W. Cooper: University of Texas
Kaoru Tone: National Graduate Institute for Policy Studies

Chapter 14 in Data Envelopment Analysis, 2007, pp 381-404 from Springer

Abstract: Abstract In this chapter, we have covered two subjects; economies of scope and capacity utilization. 1. Economies of scope concerns the problem whether any significant difference in efficiency exists between specialized and diversified firms. The specialized firms produce different (specialized) products, whereas the diversified firms produce all of the concerned products. We extended this model to comparisons of two business models where both models utilize common inputs for producing common outputs but their business styles are different. 2. Capacity utilization deals with the situation where some input values are fixed and cannot be easily altered while some are flexibly alterable. Thus, we divided inputs into fixed and variable inputs, and studied the effect on efficiency caused by the variable inputs according to whether relaxation of variable inputs improves the efficiency of DMU under evaluation. We analyzed two aspects of capacity utilization; (1) technical and (2) price-based. 3. Example applications were presented to illustrate uses of both these approaches.

Keywords: Data Envelopment Analysis; Maximum Profit; Capacity Utilization; Efficient Frontier; Technical Inefficiency (search for similar items in EconPapers)
Date: 2007
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DOI: 10.1007/978-0-387-45283-8_14

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