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  • The Points of Strength and Weakness of Neoclassical Theory of Production

    Transféré par

    Elio Jahaj
    5K vues2 pages
    The document summarizes the key points of strength and weakness of the neoclassical theory of production. It states that the theory attempts to explain the relationship between factors of production like labor, capital, land and entrepreneurship and a firm's output. However, it fails to adequately account for real-world factors that influence productivity beyond these variables, such as management, worker relationships, social values and legal limitations. Additionally, the theory treats productivity as an intrinsic worker characteristic rather than being influenced by external management practices.

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    Economics

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    The document summarizes the key points of strength and weakness of the neoclassical theory of production. It states that the theory attempts to explain the relationship between factors of production like labor, capital, land and entrepreneurship and a firm's output. However, it fails to adequately account for real-world factors that influence productivity beyond these variables, such as management, worker relationships, social values and legal limitations. Additionally, the theory treats productivity as an intrinsic worker characteristic rather than being influenced by external management practices.

    Droits d'auteur :

    © All Rights Reserved
    Téléchargez comme PDF, TXT ou lisez en ligne sur Scribd
    Signaler comme contenu inapproprié
    5K vues2 pages

    The Points of Strength and Weakness of Neoclassical Theory of Production

    Transféré par

    Elio Jahaj
    The document summarizes the key points of strength and weakness of the neoclassical theory of production. It states that the theory attempts to explain the relationship between factors of production like labor, capital, land and entrepreneurship and a firm's output. However, it fails to adequately account for real-world factors that influence productivity beyond these variables, such as management, worker relationships, social values and legal limitations. Additionally, the theory treats productivity as an intrinsic worker characteristic rather than being influenced by external management practices.

    Droits d'auteur :

    © All Rights Reserved
    Téléchargez comme PDF, TXT ou lisez en ligne sur Scribd
    Signaler comme contenu inapproprié
    sur 2

    Explainwhatthepointsofstrengthandweaknessofneoclassicaltheoryof

    productionare.

    Theneoclassicaltheoryofproductionattemptstoexplaintherelationship
    betweenthefactorsofproductionavailabletoafirm(land,labor,capitaland
    entrepreneurship)andtheoutputofthefirm.Underthistheory,firmsarerepresentedas
    productionfunctionsthataremainlyfocusedonexplainingthequantitativerelationship
    betweenlabor,capitalandthestateoftechnology,whilelandandentrepreneurshipare
    usedinamorequalitativemanner.Aproclaimedadvantageofthismodelisthatthe
    understandingoftherelationshipbetweencapitalandlaborhasledtothesystemof
    massproduction,whichbenefitsproducersbyminimizingthecostsassociatedwith
    laborandconsumersduetothelowerpricesderivedfromlowercostsfortheproducer.
    Thisrelationshipbetweenlaborandcapitalisessentialalsoindistinguishingbetween
    theshortrunandthelongrun,wheretheshortrunistheperiodoftimewhereatleast
    onefactorofproductionisfixedandinthelongrunallFOPsarevariableandthestate
    oftechnologychanges.Thus,theoreticallyfirmscandistinguishbetweentheshortrun
    andthelongrunandmakenecessaryadjustmentsinbothbycontrollingthenumberof
    workershired(shortrun)andbyscalingthesizeofthefirm(longrun).

    Asstated,thistheoryofproductionishighlydependentonexplainingthe
    relationshipbetweenlaborandcapital.Althoughneoclassicaleconomistswouldargue
    thatthesetwoFOPsareinterchangeablyfixableintheshortrun,inrealitychanging
    laborismucheasierthanchangingcapital.Moreover,aspracticeshows,itisextremely
    difficulttomeasuretheproductivityofasingleemployee,letalonemeasurehowthis
    productivityincreasesordecreasesasonemoreworkerisadded.Inprinciple,thetoo
    manycooksinthekitchenprincipleofdiminishingreturnstolabormightbelogically
    coherentunderneoclassicalassumptions,butinrealityitdoesaverypoorjob
    explainingtheeffectsofexternalinfluencesonlabor,suchasmanagementandsocial
    values.Thistheorywouldhaveitthattheproductivityofeverylaborerissomewhat
    intrinsic,whichcanbethoughtasthemaximumphysicalorintellectualcapacityofa
    laborertocarryoutatask.However,workersrarelyapproachthislimitandevenifthey
    areforcedto,alawsuitmightbependingonthecompany.Again,neoclassicaltheory
    doesnotexplaintheroleandeffectoflegalandsociallimitations.

    Inthe21stcenturyitseemsparticularlyludicroustodependentonatheorythat
    doesnotaccountforexogenousfactorssuchasmanagement.Byholdingthat
    productivityisdependentontheworkerscharacteristicstherelationshipbetweenlabor
    andmanagementbecomessomewhatantagonistic,becausemanagementisviewedas
    theforcethatguaranteesthatworkersreachtheirlevelsofproductivity.Inreality,any

    respectableenterprisecreatesbridgesofcooperationbetweenmanagementand
    workers.Infactoneofthebiggestdiseconomiesofscalethatfirmshavetodealwithas
    theyexpandisthecomplexityofcreatingbiggercommunicationnetworks.These
    diseconomiesareonlysolvedbycreatingcommunicationnetworksthatpromote
    cooperationbetweenmanagementandworkers.

    Appendix
    Contemporarypracticesofproductionprovideamyriadofexamplesthatarecounterto
    manyoftheconclusionsthattheneoclassicaltheoryofproductionposits.Asan
    examplewecanlookatthemanyfirmsthatreduceworkhours,increasebenefitssuch
    asvacationtimeandliftrestrictionsintheworkplaceallthewhileleadingtooverthe
    boardincreasesinproductivity.AlsotheToyotamanufacturingmodelhaschallenged
    manyoftheworkplacepracticesestablishedbytheFordmodel,especiallyhowthe
    productionlineisoperated.Formoreonthelastexample,thislinkisagreatresource:
    http://www.thisamericanlife.org/radioarchives/episode/561/nummi2015

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