There are two concepts of Efficiency - Technological Efficiency (TE) and EconomicEfficiency (EE). Technological Efficiency occurs when it is not possible to increase outputwithout increasing inputs. Economic Efficiency occurs when the cost of producing agiven output is as low as possible. TE is an engineering matter; EE depends on the pricesof productive resources.Suppose there are 4 different methods for making TV sets -a) Robot production: One person monitors the entire computer driven processb) Production Line: Workers specialize in a small part of the job as the emerging TV setpasses them on a production line.c) Bench Production: Workers specialize in a small part of the job but walk from bench tobench to perform their tasks.d) Hand-tool production: A single worker crafts the whole TV set with a few hand-tools.The following table sets out the amount of labor and capital required to make 10 TV setsin a day.Table 1: 4 Ways of Making 10 TV setsQuantities of InputKMethodLa. Robot Production1b. Production Line10c. Bench Production100d. Hand-tool production 1,0001,00010101I. Are all of these alternative methods technologically efficient? Why or Why not?II. Now let us check for economic efficiency - Suppose Labor Costs are $ 75 per person-day, and capital costs $250 per machine-day. Create a new table and calculate theassociated labor costs, capital costs, total costs and cost per TV set (Average Total Cost)for each of the production alternatives. Which method is now the most economicallyefficient?III. Now suppose Labor costs are $ 150 per day and Capital costs are $ 1 per day. Gothrough the same exercise and calculate the associated labor costs, capital costs, total costsand cost per TV set (Average Total Cost) for each of the production alternatives. Whichmethod is now the most economically efficient?IV. Finally, if we were to out-source productions to an offshore facility where labor costsare just $ 1 per day, and capital costs are $1,000 per day. Calculate the associated labor

Technological efficiency is the production process where output can be increased without increasing…

There are two concepts of Efficiency - Technological Efficiency (TE) and Economic Efficiency (EE). Technological Efficiency occurs when it is not possible to increase output without increasing inputs. Economic Efficiency occurs when the cost of producing a given output is as low as possible. TE is an engineering matter; EE depends on the prices of productive resources. Suppose there are 4 different methods for making TV sets - a) Robot production: One person monitors the entire computer driven process b) Production Line: Workers specialize in a small part of the job as the emerging TV set passes them on a production line. c) Bench Production: Workers specialize in a small part of the job but walk from bench to bench to perform their tasks. d) Hand-tool production: A single worker crafts the whole TV set with a few hand-tools.

There are two concepts of Efficiency - Technological Efficiency (TE) and Economic Efficiency (EE). Technological Efficiency occurs when it is not possible to increase output without increasing inputs. Economic Efficiency occurs when the cost of producing a given output is as low as possible. TE is an engineering matter; EE depends on the prices of productive resources. Suppose there are 4 different methods for making TV sets - a) Robot production: One person monitors the entire computer driven process b) Production Line: Workers specialize in a small part of the job as the emerging TV set passes them on a production line. c) Bench Production: Workers specialize in a small part of the job but walk from bench to bench to perform their tasks. d) Hand-tool production: A single worker crafts the whole TV set with a few hand-tools.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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