indivisibilities

the physical inability, or economic inappropriateness, of running a machine or some other piece of equipment at below its optimal operational capacity. For example, because of design and technical specifications a machine may optimally carry out 4,000 operations per day, it being physically impossible to build two ‘half-machines’ in its stead, each performing only 2,000 operations. Given this situation, a firm requiring, say, a machine which carried out 3,000 operations per day would be forced to invest in the minimum-sized machine of 4,000 operations per day capacity. As a result the machine would be under-utilized and the unit of AVERAGE COST would be greater than if the machine were optimally employed.

Indivisibilities may pose particular problems in the context of a PRODUCTION-LINE operation where a number of processes and machines, each having different optimal capacities, may be required. Suppose a firm needs to combine process A machines capable of carrying out 5,000 operations per day and process B machines capable of carrying out 2,000 operations per day. Only by producing 10,000 units a day, employing two process A machines and five process B machines, would the firm be able to use both types of machine in a cost-effective way. Any output level below this would result in either one or other machine, or both, being under-utilized. See MACHINE UTILIZATION, PRODUCTION-LINE BALANCING.

indivisibilities

the minimum physical or technical size limitations on FACTOR INPUTS. For example, a company wants to purchase a machine that can undertake 5,000 operations a day Because of design and technical difficulties, the minimum-size machine available optimally carries out 10,000 operations a day The machine is indivisible since it cannot be reduced to two optimal half-machines. The AVERAGE COST of each unit of output is consequently greater than it would be if the manufacturer could produce at an output level where the machine was optimally employed. The manufacturer could achieve ECONOMIES OF SCALE by attaining a large volume of production, but this can give rise to problems of combining large, indivisible inputs with different capacities. For example, if the manufacturer above needs to combine process A machines capable of carrying out 10,000 operations a day and process B machines capable of carrying out 4,000 operations a day, then only by producing 20,000 units a day in two process A machines and five process B machines would he be able to use both types of machine in an economically feasible way. Any other output level would result in a degree of under-utilization of one or the other machine. See PRODUCTION FUNCTION.

Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005

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References in periodicals archive

(2) Telser (1987) shows that an empty core may arise from several complex situations in oligopoly, relating mainly to indivisibilities in production and demand.

Some responses that a firm might normally consider are not possible for Network because of indivisibilities in production.

U.S. airline antitrust policy and empty core disequilibrium

The idea that conflict is due to indivisibilities seems to be well understood in the political science literature concerned with conflict.

(2) Indivisibilities: Indivisibilities may lead to conflict for several reasons.

The slippery slope of concession

One example from the financial markets is mutual funds, which relax wealth constraints and asset indivisibilities. (2) (See DeGennaro and Kim 1986.) Other examples are two exchange-traded funds, the American Stock Exchange's Standard and Poor's Depositary Receipts, better known as Spiders, and Nasdaq-100 Index Tracking Stock, better known as QQQs.

Asset indivisibilities are an important reason mutual funds and derivative securities such as Spiders and QQQs exist.

Financial market frictions

One example from the financial markets is DeGennaro and Kim (1986), which shows how mutual funds relax wealth constraints and asset indivisibilities. Other examples are two exchange-traded funds, the American Stock Exchange's Standard and Poor's Depositary Receipts, better known as Spiders, and Nasdaq-100 Index Tracking Stock, better known as QQQs.

Market imperfections

Such indivisibilities result in dramatically increasing returns to scale: If a $1 million investment in research and development results in just one unit of an invention, the prototype, a $2 million expenditure could result in the prototype plus thousands or millions of duplicates.

Creation myths: does innovation require intellectual property rights?

infrastructure), and pecuniary and technological externalities in underdeveloped countries and thus the prevalence of market failures in those countries, emphasized a visible rather than the Smithean notion of the invisible hand, the theory of the big push, strategic complementarity, and, as a means of correcting distortions associated with indivisibilities, externalities and various failures, the programming of investment projects.

Rosenstein-Rodan: from marginal utility to a pioneer in economic development and possibly socio-economics

However, Scarf has advanced a strong case for reconsideration of the role of indivisibilities; in particular, because their presence leads to the failure of the pricing test for optimality or for welfare improvements (1994, pp.

Information economics: research strategies

But when scale economies and indivisibilities prevail in construction, as undoubtedly they do for many kinds of development (e.g., hotels, shopping centers, theaters, and commercial office buildings), land development is lumpy and does not proceed continuously.

Zoning rights and land development timing