Achieving production efficiency mainly encapsulates the process of producing goods and services at the lowest rate. Production efficiency can be witnessed at all points of the PPF. When the inefficiencies in production are studied in detail the cause that is identified is mainly the disparity between the producing costs of goods. To illustrate this point in Fig 2.1, a company can produce 3 million pizzas and 9 million colas but as the production cost of pizza is more the quantity of cola is reduced to 5 million to balance the costs. Producing goods on PPF ensures the most affordable cost of production.
The causes of inefficient production can be narrowed down in the PPF to three main reasons. First there are unused resources which can be explained with the phenomenon of dismissing employees from factories or shutting down production. Second, there is misallocation of resources. If the market could not be studied then taking from the earlier example pizza chefs could be assigned to cola production and cola producers be asked to make pizzas. If proper appropriation of resources could be conducted that not only production would undergo positive development but the quality would also be enhanced.
Links of Previous Main Topic:-
Links of Next Macroeconomics Topics:-