I’m having a difficult time understanding the definition of technological efficiency and how it differs from economic efficiency. The text defines T/E as producing a given amount of output with the least amount of inputs. E/E is producing a given amount of output with the least amount of costs. But what is an input? If 1 unit of labor and 1000 units of capital are employed, is that 1001 inputs? Does unit cost factor into the definition? I’m not quite getting it and would appreciate some guidance. Thank you.
Unit cost doesn’t matter for the technological efficiency, If you will take cost into picture then it is economic efficiency. technological efficiency just mean to generate the output with least number of input whether it is labor or machinery or capital
…so if you take the table in the book: Example Labor Machinery A 1000 1 B 100 10 C 10 10 D 1 1000 …how do you evaluate which is most technologically efficient?
In the above question, Machinery B is Technologically INEFFICIENT and the rest are EFFICIENT…beacuse all other machineries A,C and D can do a task with the least inputs i.e. 1, 10 and 1 respectively… Any firm will not use B beacuse it consumes more capital and labor compared to the other 3 Also, a Technologically INEFFICIENT machine and never be Economical EFFICIENT
I don’t get it. A and D require 1000 inputs of either labor or machinery. I’m just not following the logic. Can you explain further? Thanks.
From your table, we only know that B is technologically inefficient because it requires 90 more labor compared to C. However, the rest are all efficient. As to which are the most technologically efficient, we are not sure because the prices of labor and machinery inputs are not known. If labor is cheaper, A is more efficient; If machinery is cheaper, D is more efficient; If both prices varies, it can be C which is more efficient (depends on the price, maybe its still inefficient but you get the point.