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.
Chan, Felix, T.S., Bhagwat, R. and Wadhwa, S. (2008) Comparative Performance Analysis of a Flexible Manufacturing System (FMS): A Review-Period-Based Control. International Journal of Production Research, 46, 1-24.
Aranoff, G. (2011) Competitive Manufacturing with Fluctuating Demand and Diverse Technology: Mathematical Proofs and Illuminations on Industry Output-Flexibility. Economic Modelling, 1441-1450.