ABSTRACT

AFTER our descriptive analysis in the last two chapters of the firm’s market behavior, we can now proceed to appraise the efficiency both of the individual firm and of the productive system as a whole. The word “efficiency” in this connection can mean two things. The usual meaning attributed to the term is the achievement of the greatest possible output with given means or the achievement of a given output with the smallest means. This form of efficiency may be called technological efficiency. In earlier chapters of this book, however, we appraised economic institutions by their conformity to the community’s wishes and termed this their economic efficiency. It is apparent that both these interpretations of efficiency provide valid criteria by which to judge the performance of the firm and the productive system. Although they will be seen to be closely related, it nevertheless seems preferable to deal with them separately. In the following pages, therefore, we shall appraise the efficiency of production by each of these two criteria in turn.