we draw a conclusion that a production unit may be technically efficient but may
still be able to improve its productivity by exploiting economy of scale. Third, if the
production unit exists in a relatively long period of time, there may be an upward
shift in the production frontier which represents the technical change. Here we use
Fig.2.2 to depict this situation, in which the production frontier moves from OF 1 in
period 1 to OF 2 in period 2. In period 2, all production units can technically produce
more output for each level of input, relative to what was possible in period 1. Above
all, the productivity increase of a production unit is mainly from the sources of
technical efficiency, scale economy, and technical change, or some combinations of
these three factors. In Fig.2.3, we present all the types of efficiency and produc-
tivity mentioned above, and their possible ways to improve.
Fig. 2.1 Productivity,
technical efficiency and
economy of scale
Fig. 2.2 Technical change
between two periods
2.2 Efficiency and Productivity: Concept, Classification and Distinction 15