# lectur9 - PRIVATE ECONOMIC EFFICIENCY A KEY TO...

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PRIVATE ECONOMIC EFFICIENCY A KEY TO PROFITABILITY

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PHYSICAL EFFICIENCY FIRST Before we can discuss private economic efficiency, we must define another measure of efficiency known as PHYSICAL EFFICIENCY (TECHNICAL EFFICIENCY, OR PRODUCTIVITY).
Simple ratio of: Units of Output / Units of Input For example, Feed Efficiency = lbs. of gain / lb. of feed Fertilizer Efficiency = lbs. of corn / lb. of fertilizer

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Simple ratio of: units of output / units of input Irrigation Efficiency = lbs. of tobacco / inch of water Labor Efficiency = acres mowed / hour of labor
Let's examine the physical efficiency of corn production with respect to energy over time Define PE labor as bushels of corn produced / hour of labor. Define PE fuel as bushels of corn produced / gallon of fuel.

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Some Data: 1945 1971 1987 1988 corn yields (bu/ac) 33.1 88.1 119.4 84.6 price of corn (\$/bu) 1.23 1.08 1.94 2.55 price of labor (\$/hr) .43 1.64 5.00 5.02 price of fuel (\$/gal) .20 .26 .71 .73 hours labor per acre 19.2 5.10 1.90 1.90 gallons fuel per acre 0.00 15.0 12.0 12.0
Analysis: 1945 1971 1987 1988 PElabor 1.72 17.27 62.84 44.53 PEfuel 5.87 9.95 7.05

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What does this data tell us ? PE labor and PE fuel have gone up. The real price of labor has increased. The real price of fuel has decreased The real price of corn has decreased
How do you know the real price of corn decreased? Turn to page 276 of your Notebooks. There you will find a time-series of the Consumer Price Index (update)

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Analysis: CPI for 1945 is 18.0 CPI for 1988 is 118.3 We find the INFLATION that occurred over this time period by calculating the percentage change in the CPI from 1945 to 1988
Analysis: % Change in CPI = ((CPI 1988 - CPI 1945 ) / CPI 1945 ) X 100 ((118.3 - 18.0) / 18.0) X 100 = 557.22%

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## This note was uploaded on 12/06/2011 for the course ECON 101, 102, taught by Professor Staff during the Fall '10 term at Rutgers.

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lectur9 - PRIVATE ECONOMIC EFFICIENCY A KEY TO...

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