On our final Learning Path of our series on cost analysis, we’ll learn about cost efficiency, how to reduce costs while maintaining volume and quality. Therefore (and starting with economies of scale, as a link to last week’s LP), we could ask ourselves the following questions: will my costs fall if I produce more? Or if I produce a wider portfolio? Or what is the role training and specialisation can play in increasing efficiency?
After understanding how cost efficiency can be achieved, we turn to the main critiques of neoclassical cost analysis. Up to now, everything sounded just as what they’ve been teaching us at school and college. However, a few theories stood up against all this, mainly form Industrial Organization theory.
In this LP, we’ll start by looking on how to improve cost efficiency, with:
- Economies of scale, looking at how our levels of production can help us maximise cost efficiency;
- Economies of scope, looking at product portfolio size in cost reduction;
- Economies of learning, looking at the impact of know how on cost, an analysing in detail
- Learning curves and
- Experience curves.
Then, we’ll learn about the main critiques against neoclassical cost analysis:
- Industrial organization, analysing its main authors and concepts;
- George Stigler, one of the key figures of Industrial Organization;
- Stigler’s cost analysis theory, which greatly differed from classical economies of scale;
- X-inefficiency, an idea put forward by Harvey Leibenstein.