A Simple Numerical Example Illustrating Flexible versus Inflexible Manufacturing Systems

Flexible manufacturing system is a wonderful development in manufacturing technology that permits a modern factory to switch easily to making different products. I present a simple numerical example to illustrate flexible manufacturing system (K) and inflexible manufacturing system (L). K can produce product 1 or product 2 with the same machinery and with zero setup costs in changing output from product 1 to 2 or from product 2 to 1. L can produce only one product, product 2. I assume large numbers of producers and buyers of products 1 and 2, open market systems, each acting to his/her interest to secure profits and consumer welfare with minimal government interference/ regulation. I assume both K and L have linear total costs with absolute capacity limits. If prices are above SRMC then plants produce at capacity. Producers are price takers only. If price equals or below SRMC plants shutdown. I assume demand for products 1 and 2 are random and alternate, meaning never at the same. I assume ease of entry/exit of producers. Long-run equilibrium requires zero expected profits for all producers.