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Lecture Thirteen: Technology and Economic Efficiency
November 10, 2011
Technological efficiency occurs when a firm products a given level of output by
using the least amount of inputs.
There may be different combinations of inputs that are all technologically
efficient, but there is always one that is more so than the others (because it is
also economically efficient).
Economic efficiency occurs when the firm produces a given level of output at
the least cost
The economic efficiency method depends on the relative costs of capital and
The difference is that technological efficiency concerns the quantity of inputs and
economic efficiency concerns the price of the inputs.
An economically efficient production process may be technologically efficient, but
this is not always the case. It is possible to have one without the other.
Practice Exam Questions and Answers
1. When are contests are a good job in resource allocation?
When it is hard to track all the different stages leading up to the final goal, the
final performance is all that is marked.
“When the efforts of the players are hard to monitor and reward directly”
2. A used truck has a sticker price of $21 000. Arthur is willing to pay $19 500. He
only pays $19 250. What is his consumer surplus?
His consumer surplus is how much he is willing to pay minus what he actually
paid, so 250.
3. The principle of increasing marginal cost means that