Chapter13 Additional Insights - Chapter 13 Production and...

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Chapter 13: Production and Cost Analysis II [Note: Skip “Appendix A” at the end of the chapter.] In the previous chapter, the focus was on productivity and costs in the short run. Now we are going to allow enough time for all factor inputs to be varied and look at the decisions that the firm has to consider in the long run. Mainly, be familiar with the various concepts that relate to the long run. In particular, I. Difference between TECHNICAL EFFICIENCY and ECONOMIC EFFICIENCY: Many times there is more than one way to do something. That is, a firm might be able to produce a particular amount of output using different combinations of inputs….such as more labor and less capital with one method or less labor and more capital with another method….each method would produce the same amount of output. The method that uses fewer inputs would be technically efficient. The method that produces the output at the lowest cost is the economically efficient method. Economic efficiency takes input prices
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