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What is Technical Efficiency?

 , updated on March 29, 2017
Technical efficiency is the output produced for a unit of labor or capital. For example, a pencil factory that can produce 900 pencils per hour of employee labor. Technical efficiency is improved with techniques such as knowledge, training, automation and information tools for workers.

Technical Efficiency vs Allocative Efficiency

Technical efficiency is the basic productive capacity of an organization or economy. Allocation efficiency is a strategy that uses that capacity efficiently. For example, an organization that can produce 900 pencils per hour isn't efficient if those pencils are produced in a color that no customers want.
The efficiency of an economy or organization depends on both technical efficiency and allocative efficiency. As an extreme example, directing the productive capacity of an economy towards a war may produce declining quality of life as opposed to things that people need.
Overview: Technical Efficiency
Type
Definition
The output produced for a unit of labor or capital.
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