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    Technical and Economic Efficiency

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    I need help with these problems, just some brief explanations.

    1. At a management luncheon, two managers were overeat arguing about the following statement "A manager should never hire another worker if the new person diminishing returns". Is this statement correct? If so, why? If not, explain why not?

    2. Engineers at a national research laboratory built a prototype automobile that could be driven 180 miles on a single gallon of unleaded gasoline. They estimated that in mas production the car would cost $40,000 per unit to build. The engineers argued that Congress should force U.S. automakers to build his energy-efficient car.
    a. Is energy efficiency the same thing as economic efficiency? explain.
    b. Under what circumstances would the energy-efficient automobile described here be economically efficient?
    c. If the goal of society is to get the most benefit from its limited resources, they why not ignore economic efficiency and build the energy-saving automobile?

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    Solution Preview

    Diminishing marginal returns occurs when the rate of increase of output begins to decline. Thus, if the next worker hired would increase production by 10 units, while the previous one hired increased output by 15 units, diminishing returns are occurring. What this tells us is that additional workers are not being as productive as the earlier ones were able to be. However, the decision on whether they increase profits is based on their marginal revenue product, not their marginal returns. When diminishing marginal returns first occurs, the average revenue product continues rising. Only when marginal revenue product ...

    Solution Summary

    Relationship between technical and economic efficiency are looked at in this 403-word solution.