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date: 25 February 2021

Abstract and Keywords

We study various analytical frameworks relating productivity change to change in the cost structure and cost efficiency of the firm. We begin by motivating a focus on the cost side, and not the revenue side, of the profit objective of the firm. We continue by relating the cost accounting tool of standard cost variance analysis to the economics tool of cost efficiency analysis. We focus on managerially controllable drivers of cost efficiency, including productivity change and its components. We conclude by noting some significant empirical applications of the analysis, by recommending cost efficiency analysis as a valuable tool for benchmarking against the best, and by suggesting some new directions for research.

Keywords: cost variance analysis, cost variance drivers, cost frontier analysis, unit cost frontiers, unit labor cost frontiers, benchmarking

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