The Impact of Technical Inefficiency on Business Management
The author highlights the short-term impact of technical inefficiency on business profitability. In the short-term analysis, technical efficiency is the necessary, but not sufficient, condition for achieving economic efficiency. Technical efficiency is measured by the degree of use of the maximum production capacity available to the company. The increase in the level of use of the production capacity available to the company leads to an increase in profitability due to the reduction in the incidence of fixed costs.
Focusing on the short-term economic impact of technical inefficiency on business profitability, the author draws attention to the illusion of the low-cost phenomenon, the important role of the warehouse to transfer the economic implications of technical inefficiency over time, and the meaning of overbooking policies.
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