Managerial Economicsadvanced
Explain why the input-output relationship is described as technical and how it can inform a manager's production decisions.
Answer
The relationship is technical because it describes how quantities of inputs can be transformed into output under production rules or technology. Managers can use it to assess output possibilities, input combinations, and production scale when choosing what and how much to produce. It must be considered alongside costs, demand, and other business conditions.
Explanation
### What a good answer covers
- A production function describes the technical relationship between inputs and output.
- The relationship depends on the production rules or technology available to the firm.
- Managers can use it to consider output levels and factor combinations.
- Production choices should also be evaluated against costs, demand, and profit objectives.
### The concept
A technical relationship describes what production process can produce from given inputs; it does not by itself determine whether that output is profitable or saleable. Economic decision-making connects technical possibilities to costs and market demand. This distinction helps managers avoid confusing the ability to produce a good with the desirability of producing it.
### Remember
Technology shows what can be produced; economics helps assess what should be produced.
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