A firm uses capital and labour in production. To determine if the firm is technologically efficient, it
A)must know the cost of labour and the cost of capital.
B)does not need to know the cost of labour or the cost of capital.
C)must know the cost of labour but not the cost of capital.
D)must know the cost of capital but not the cost of labour.
E)must use unionized labour.

Question

Quizplus · Accepted Answer

Technological efficiency refers to the ability of a firm to produce maximum output using minimum inputs. It does not depend on the cost of inputs, only on the production process. Knowing the cost of labour and capital may help the firm determine its profitability, but it is not necessary to determine the technological efficiency. Therefore, the firm does not need to know the cost of labour or the cost of capital to determine if it is technologically efficient.

A Firm Uses Capital and Labour in Production