Technical efficiency refers to the moment in which an economy is producing the maximum possible with the available resources. To achieve this, it is necessary to maximize productivity with the available technology.
In other words, technical efficiency, also known as productive efficiency, refers to when an economy reaches the maximum possible production with the available resources.
Before starting with the definition of technical efficiency, it is necessary to make a brief explanation of what productivity means. Productivity is the relationship between the production of goods and services and the resources used for it.
The higher the productivity, the fewer resources are needed to produce one unit of a good or service. These resources can be labor, capital, time, raw materials, etc.
The maximum productivity that can be achieved depends very much on the technological advance available.
In other words, if you want to make a wooden table with just a saw and screws, your maximum productivity is limited to the minimum time a two-handed person with those tools requires to make the table. Suppose that this minimum time is 2 hours, so you will have achieved technical efficiency if you manage to make the table in 2 hours.
On the other hand, if you have a cutting machine that allows you to cut the planks in 5 seconds instead of 2 minutes, you will be able to reduce the production time of the table by up to 1 hour, increasing productivity. In this case, technical efficiency would be achieved if the table can be produced in 1 hour.
Following this simple representation, productive efficiency is achieved on a large scale when an economy manages to produce as much as possible with the available resources.
Graphic representation of technical efficiency
The technical efficiency is represented graphically through the frontier of production possibilities (PPF). It is a concept widely used in economics and, if you have been trained on this subject, it surely sounds familiar to you.
The production possibilities frontier is represented by an X axis (mobile phones in the image) and a Y axis (cars). Each of these axes is assigned a product whose production has an inversely proportional relationship with the other. Simplifying, the more this economy produces cars, the fewer mobile phones it will be able to produce.
Technical efficiency is reached at any point along the entire curve of the production possibilities frontier.
Example of technical efficiency
Based on the graph in the previous section, suppose that an economy can produce cars and mobile phones. If the economic agents decide to produce only cars, with the available technology they will be able to produce a maximum of 100 cars.
On the other hand, if they want to produce only mobile phones, the maximum number of terminals they can produce will be 10,000. Between these two points, there are many combinations associated with technical efficiency.
In short, technical efficiency is the maximum number of goods and services that an economy can produce using the available resources. In order to achieve it, it is necessary to achieve the maximum possible productivity.