What is the economic rationale for pursuing lean production? Much of the lean literature is concerned with the nuts and bolts of lean, and the economics of lean are somewhat less publicized. This article attempts to redress that imbalance, albeit in a very condensed way.

Firms employ capital and labor to transform their raw materials into their output goods and services. The inputs of capital and labor are the so-called factors of production. This is given as a firm's production function, Q = ƒ(X₁, X₂, ..., X_n), where Q is the output quantity, and X₁, X₂, …, X_n are quantities of factor inputs, such as capital, labor, and raw materials. A firm's production function specifies the firm's output for all combinations of inputs.

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