A Time for Passion

(i) Is HSL efficiently run?
(ii) Was investment, in HSL 'justified'? (iii) Should we continue to invest in new steel plants?
The answer to the first question will depend on how efficiently HSL uses material inputs like coke and iron-ore, how many skilled and unskilled labourers it has per unit of output, whether its inventories are unnecessarily high, whether its productive capacity is fully utilised or not and so on. Assuming that the marginal social value of steel is never less than the marginal variable cost of producing it, HSL can be said to be working efficiently if it functions at full capacity and minimum variable cost with inputs valued at appropriate shadow prices. This is true even if market prices are such that HSL makes losses. The historical cost of HSL's capital equipment is irrelevant to this judgment since this capital equipment cannot l>e used for anything else. Efficiency has to be judged with respect to things which we can choose.