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case study BE - (i How is operating efficiency of the...

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(i) How is operating efficiency of the generating unit defined? Why does it vary between units? It is very important to understand the nature of the short run production function. Issues like what determines the nature of relationship between the inputs and output (which can be technology, capital or variable inputs etc) will determine the shape of the TP curve and the limits to diminishing returns(slope of the TP curve). For example, if the production is capital intensive, the diminishing returns will set in late and the maximum point on the TP curve will correspond to higher level of L. Corresponding to this TP curve, the AP and MP curves are derived. AP curve is nothing but the productivity range across different output levels. This productivity would be maximized at a given input or output level, which is what we have defined as Technical efficiency. In the Early Bird case, this is the Operational efficiency.
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