# EE must be TE

Why should economically efficient production process be technologically efficient? I know EEPP is determined using cost and TEPP is determined using no of inputs. Can’t there be a scenario where number of inputs is actually more for a PP but cost is less? Let’s say, per hour, cost of the Machine(M) is \$3200 and cost for labor(L) is \$32. Let’s say PP1 uses 1L and 1M, PP2 only uses 5L. PP2 is economically efficient as it uses cost of \$160 but PP1 is technologically efficient. Here PP2 is not actually technologically efficient but it is economically efficient. Is there anything wrong with my understanding?

i thought the rule was that something that’s technologically inefficient can never be economically efficient – which makes sense, because if something’s technologically inefficient, that means there is a way of doing it with less input units, which is always going to be cheaper.

They are both technologically efficient in your example. If PP2 had used 1M and 5L, than it would have been technologicvally inefficient, because there was possibility to produce the same thing using the same quantity of M but less L (PP1 in your example). Now PP2’s bigger quantity of labor is compensated by no usage of mashine. But, for example, If there had been PP3, which produced with 0M and 4L, then PP2 would have been technologically inefficient. I think in CFAI 104-107 pages is good explanation.

Kiakaha Wrote: ------------------------------------------------------- > i thought the rule was that something that’s > technologically inefficient can never be > economically efficient – which makes sense, > because if something’s technologically > inefficient, that means there is a way of doing it > with less input units, which is always going to be > cheaper. I think rule for sure is EE must be TE. That was the answer and I have seen in the notes.

optiix Wrote: ------------------------------------------------------- > They are both technologically efficient in your > example. If PP2 had used 1M and 5L, than it would > have been technologicvally inefficient, because > there was possibility to produce the same thing > using the same quantity of M but less L (PP1 in > your example). Now PP2’s bigger quantity of labor > is compensated by no usage of mashine. But, for > example, If there had been PP3, which produced > with 0M and 4L, then PP2 would have been > technologically inefficient. I think in CFAI > 104-107 pages is good explanation. So you mean to say we can not blindly look at the number of inputs but have to compare individual resources to see if any process could be there which could produce the same quantity with less number of inputs of that particular resource? Do we compare efficiency for only two types of resources M and L or do we have any other resources as well? As far as I understand from your post if two processes are not comparable like if these two processes use only M and other one only L then both will be technologically efficient as long as there is no alternate process which can produce with either less L or M.

sgupta0827 Wrote: > So you mean to say we can not blindly look at the > number of inputs but have to compare individual > resources to see if any process could be there > which could produce the same quantity with less > number of inputs of that particular resource? Do > we compare efficiency for only two types of > resources M and L or do we have any other > resources as well? As far as I understand from > your post if two processes are not comparable like > if these two processes use only M and other one > only L then both will be technologically efficient > as long as there is no alternate process which can > produce with either less L or M. You’re absolutely correct. You have to compare individual processes and see if there isn’t any other process which could produce the same product with the same or less amount of one resource AND, at the same time, with less amount of another resource. And if there isn’t, the process is efficient. In your example both processeses are efficient because one process uses less labor, while another uses less machine (there is no process, which uses less of both, or the same of one, but less of another resource). However, there is only one economically efficient process.