Non-convex costs and capital utilization: A study of production scheduling at automobile assembly plants

Abstract

I study detailed data from eleven automobile assembly plants. These data display considerable cross-plant heterogeneity in production scheduling. To explain the observed heterogeneity, I solve a dynamic programming model. When desired production is below the plant's minimum efficient scale, non-convexities induce production bunching; the plant uses less than full capital utilization on average and production is more volatile than sales. When desired production is above the plant's minimum efficient scale, the plant operates in a convex region of the cost curve. In this case, it uses high levels of capital utilization and production is less volatile than sales. © 2000 Elsevier Science B.V.