I’m in reading 16 of the economics book on organizing production. The books says “a technologically inefficient method is never economically efficient” Then the answer to the first question in the qbank is this… Economic efficiency occurs when a given output is achieved at the lowest possible cost. The total cost for Jones is $340 per skateboard = (10 x $10) + (6 x $40). The total cost for Cortez is $420 per skateboard = (8 x $15) + (6 x $50). So, Jones is economically efficient. Jones is technologically inefficient because he uses the same equipment hours as Cortez, but more labor hours. One of these has to be wrong??? Or am i missing something here?
Let’s consider an example… Company A and B needs the following amt of resources to complete a consignment… Company A needs ---------------------- 10 machines 50 workers Company B needs ---------------------- 5 machines 10 workers So Company A is technologically inefficient… it’s taking more resources to generate the same piece of output than other company B To calculate Economic Efficient… let’s consider Cost of Machine = $100 Cost of Labor = $10 Company A = 10*100 + 50*10 = 5000 Company B = 5*100 + 10*10 = 600 So A is economically inefficient too… Don’t know if this is correct… let the experts get back on this… but, the solution to the problem you listed… has different cost multipliers 1st company is multiplying some $10 and $40 and the other company is using different cost all-together, $15 and $50… so we have no common bases to compare their economic efficiencies… - Dinesh S
stuartma - technologically inefficient method is never economically efficient ONLY if the cost of each unit of input remains constant. in the example you gave, the cost of the first input varies in the two methods (10 in the first and 15 in the second)