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!!!

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.

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.