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The Nature of Production - Efficiency
Productivity is an important part of a business being efficient.
Efficiency can mean different things in business but there are essentially two ways we can look at it.
Productive Efficiency: A business can improve productive efficiency by producing output at the lowest cost possible. If it can find a way of producing its products cheaper then it can improve its productive efficiency.
Technical Efficiency: A business can improve its technical efficiency if it could find a way of using its existing resources to produce more. It may be that it could use machinery instead of people that do the same job but do it much faster without having to take a break!
Task
| Units of machine | Cost of machine per unit | Units of labour | Cost of labour per unit | Output | TC | Cost per unit (average cost) |
|---|
| 10 | £20 | 5 | £15 | 100 | | |
| 5 | £20 | 10 | £15 | 100 | | |
| 15 | £20 | 7 | £15 | 150 | | |
| 15 | £20 | 8 | £15 | 170 | | |
| 20 | £20 | 1 | £15 | 150 | | |
| 25 | £20 | 4 | £15 | 200 | | |
- Complete the table calculating the total cost and the average cost.
- Having completed the table, which would be the most efficient combination for the firm to use? Explain your answer.
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