Technology and Costs

Visualizing technologies

A technology transforms inputs, such as electricity, labor, fabric, or metal, into a final product. Firms drive technological progress by investing in research and development to increase their profit. This innovation can improve productivity and reduce production costs.

Assume, for simplicity, that a firm only uses two inputs to create its final product: electricity and labor. Different technologies use different quantities of these two inputs. Each technology can be represented by a point on a graph, where the \(x\)-axis plots the amount of labor required and the \(y\)-axis plots the amount of electricity required for each unit of output.

Consider an example where a firm can pick between two technologies. Technology A requires 15 hours of labor and 10 units of electricity to produce one unit of output, while Technology B requires 10 hours of labor and 15 units of electricity to produce one unit. Enter these quantities in the tool below to graphically compare Technology A and Technology B. You can also enter additional combinations of labor and electricity to represent other possible technologies.