Economic production efficiency is a critical aspect of economic theory as it focuses on the exact output produced with a given input. Typically, economic production efficiency is evaluated using the concept of a production possibility frontier (PPF). This is a graph that represents the relationship between two goods that are produced by an economy.

The PPF charts all possible combinations of goods that an economy can produce with a given set of resources. The theory behind the PPF is that an economy operates at its most efficient when it produces the mix of goods that lie closest to the PPF. That is to say, production at the front of the curve is considered the most efficient, as it produces the most out of the given resources as opposed to operating at points further from the curve which are considered inefficient because they produce fewer goods and leave more resources idle.

The concept of economic efficiency is also measured through an equation that looks at the difference between the output rate of a given activity and the standard output rate of the activity. The formula determines the current level of production efficiency by taking the Output Rate ÷ Standard Output Rate x 100.

The metric of production efficiency is important to entities from large corporations to small start-ups. On the one hand, large corporations such as those in the automotive industry aspire to maximize the cost-effectiveness of their production processes in order to maintain a competitive edge in the market. On the other hand, startups find that managing their resources to maximize efficiency is critical for growth.

Ultimately, production efficiency is a critical metric for operating as efficiently as possible. The initiatives taken to achieve greater production efficiency can dramatically decrease costs, improve productivity and enable companies to remain competitive. Knowing how to accurately measure production efficiency, and working to improve it, is thus an essential strategic goal of all businesses.