Technology and Costs

Dominated technologies

Firms choose technologies based, in part, on input prices. However, there are some special cases in which a technology will never be chosen, regardless of input prices.

If a technology requires more of both inputs to produce one unit of output than another technology, then it is dominated. A dominated technology is always more expensive to use, no matter the input prices, because it needs more of both inputs compared to the technology that dominates it.

Graphs help us identify dominated technologies. The figure below includes a vertical and horizontal half-line for each technology. If a technology lies in a shaded area, it uses more of both inputs than some other technology. Try entering a few technologies to see if you can identify those that are dominated.

Technologies

Exercise

Consider the following example. Technology 1 requires 15 hours of labor and 10 units of electricity, while Technology 2 requires 17 hours of labor and 12 units of electricity. Which technology minimizes production costs?

  • Technology 1
  • Technology 2
  • It is not possible to know without knowing input prices.
  • Technology 1 requires less labor and fewer units of electricity. This makes it the better option.
  • Try comparing the hours of labor and units of electricity between Technology 1 and Technology 2. Which one requires less of both inputs?
  • Try comparing the hours of labor and units of electricity between Technology 1 and Technology 2. Which one requires less of both inputs?

Exercise

Consider the following example. Technology 1 requires 10 hours of labor and 15 units of electricity, while Technology 2 requires 14 hours of labor and 12 units of electricity. Which technology minimizes production costs?

  • Technology 1
  • Technology 2
  • It is not possible to know without knowing input prices.
  • Technology 1 requires less labor but more electricity than Technology 2. Is there a clear dominating technology?
  • Technology 1 requires less electricity but more labor than Technology 2. Is there a clear dominating technology?
  • In this case, we do need input prices to tell which technology is a better option since there is no dominating technology.