Production Efficiency: the problem of costs - output

As we found out earlier, the economic theory explores the possibilities of the most complete use of limited resources in order to fully meet the boundless needs of society. This means that economic theory is the science of efficiency, more precisely, the effective use of limited resources. What is efficiency? This is one of the basic concepts of economic science, which makes it possible to explore the development of social production. In its most general form, efficiency is the ratio of the result to the cost that ensured its receipt. It characterizes the relationship between the number of units of limited resources used in the production process and the amount of a product that is received, i.e. covers the issue costs - issue & quot ;. More product, obtained from a fixed amount of costs, means increased efficiency. A smaller amount of product from a given amount of costs indicates a decrease in efficiency.

Economic efficiency is a complex category of economic science, having different forms of its manifestation. First of all, the concept of efficiency is applied to analysis of the use of resources both on the scale of the whole society, and within the framework of a single economic unit: enterprise or firm. If an economic entity carries out its activities with the minimum expenditure of economic resources (labor, capital, raw materials), then one speaks of high production efficiency. In other words, the lower the volume of costs and the greater the value in which the result of management is embodied, the higher the efficiency. Specific performance indicators are:

1) labor productivity - the indicator of the use of living labor, determined by the formula

2) capital-output - the indicator of the use of past labor embodied in the means of labor (machines, machines, equipment) is determined by the formula

3) profitability - the indicator reflecting the degree of profitability of production, sales, etc., is calculated in percentages and is determined by the formulas:

Economic efficiency is closely related to the concept of economic rationality, meaning decisions based on the desire to obtain the best economic results with the minimum possible costs of all the resources necessary for this. The idea that a person acts on the basis of a rationally calculated desire for his interest was expressed by the classics of economic science A. Smith, D. Ricardo, and others. However, the principle of rationality can be applied to the behavior of not only a single individual, but society as a whole . In this case, rationality should be treated broadly: as socio-economic efficiency, ie. efficiency, which includes the social aspect. The point is that the desire for the greatest economic result does not harm society and nature. This principle of efficient allocation of resources was called Pareto efficiency (after the Italian economist V. Pareto, see 24.1). Pareto efficiency is a state of the economy in which it is impossible to increase anyone's share in obtaining the result without cutting the share of another member of society. Only in this case will society be on the verge of usefulness-opportunities. The modern economy does not always meet the Pareto efficiency criterion. A deeper understanding of this issue will become possible after studying the problem of market equilibrium.

thematic pictures

Also We Can Offer!

Other services that we offer

If you don’t see the necessary subject, paper type, or topic in our list of available services and examples, don’t worry! We have a number of other academic disciplines to suit the needs of anyone who visits this website looking for help.

How to ...

We made your life easier with putting together a big number of articles and guidelines on how to plan and write different types of assignments (Essay, Research Paper, Dissertation etc)