As noted, the production function d

As noted, the production function describes purely physical relationships. To see the cost of each process, and identify that process which minimizes cost, we must consider the relative price of the factors. Table 5.2 shows the cost of the three processes with capital at $10 per unit and labour $4





These processes are all technically efficient because, although each uses more of one factor than, it uses less of the other factor. If a fourth process used more of one factor and no less of another it would be deemed inefficient. For example, 3K and would be technically inefficient compared to ‘process C’