economic vs technological efficiency economic, efficient, efficiency, 1000

hanvinh

Help!

It says in some review notes that a process is not technologically efficient, it cannot be economically efficient. But what if one of the inputs is extremely costly?

Consider this example ( i know the numbers are extreme, but bear with me): You can make a product with either 1000 labor hours, or 1 labor hour and 1 machine hour. The machine is some super-duper expensive monstrosity, and costs $100 million to to run for 1 hour. Labor costs $10 per hour.

Sooooo, using 1000 labor hours would be economically efficient (because it costs less) but NOT technologically efficient, because it uses more inputs......right?

So did i just prove that a process can be economically efficient, but not technologically efficient? I know i'm misunderstanding the concept, but I can't help but think of it this way.

HELP!!!

waldziuchna

Tech efficency is using the least amount of inputs.
Economic efficency is whatever method with the lowest cost.

Machine Labor // TOTAL INPUTS // TOTAL COST

A 10 5 // 15 // $150

B 12 4 // 16 // $160

C 13 1 // 14 // $140


C is most technoligcly efficent, because it uses the least inputs, HOWEVER "A" is also technologiclly efficient because it uses less inputs than B. That being said, C is the MOST technologiclly efficient method of production

Throw out a cost of machine ($100) and Labor ($10) you see that "C" is also the most economiclly efficient method because it costs only $140, which is the lowest cost between all 3 alternatives



Edited 2 time(s). Last edit at Tuesday, December 1, 2009 at 01:37PM by mbolzicco.

Benjiko

Can someone verify mbolzicco's post?

Flok

A would only be technologically efficient if C didn't exist. I don't think there's such thing as "more technologically efficient". I think it's either technologically efficient or it's not. The litmus test is what other options are presented.