If a 100% scale-efficient plant has 92% technical efficiency and 88.5% allocative-efficiency, then its overall efficiency will be :
81.42%
Option 4 — 81.42% is correct.
In production/efficiency analysis, a firm's overall (economic) efficiency is the product of its component efficiencies, not their sum or average. When a plant is 100% scale-efficient, overall efficiency depends on technical efficiency and allocative efficiency multiplied together:
Overall efficiency = Technical efficiency × Allocative efficiency × Scale efficiency = 0.92 × 0.885 × 1.00 = 0.8142 = 81.42%.
Why the other options are wrong: 88.5% and 93.0% simply repeat or round a single component and ignore the multiplicative combination; 90.25% is the arithmetic mean of the two figures, which is not how efficiencies compound. Because each stage of efficiency acts as a fraction of the previous one, they must be multiplied, and the result is always lower than the smallest component.
Takeaway: Overall efficiency = technical × allocative × scale efficiency — multiply the fractions, never average them.
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(b) \(\dfrac{Q_{0}-Q_{1}}{P_{0}-P_{1}}\times\dfrac{P_{0}}{Q_{1}}\)
(c) \(\dfrac{Q_{0}-Q_{1}}{P_{0}-P_{1}}\times\dfrac{P_{0}}{Q_{0}}\)
(d) \(\dfrac{Q_{0}-Q_{1}}{P_{0}-P_{1}}\times\dfrac{P_{1}}{Q_{1}}\)
(e) \(\dfrac{Q_{0}-Q_{1}}{P_{0}-P_{1}}\times\dfrac{P_{1}}{Q_{0}}\)
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LIST I
(Production Cost)
LIST II
(Underlying Meaning)
A.
Implicit Costs
I.
Change in the total cost per unit change in output.
B.
Marginal cost
II
Total increase in costs resulting from the implementation of a particular managerial decision.
C.
Incremental Cost
III.
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D.
Sunk Cost
IV.
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Code:
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(iv) Envelope curve
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