Figure 6.5, panel A, illustrates technical inefficiency for firms with a one-input production function. It was explained that ineffi ciency could be measured by output distance or, alternatively, input reduction distance. Sketch and explain the comparable measures for the two-input production function.

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Quantity D 5 f(L) Capital K 6 8 10 06 Q=100 0 Firms 1, 2, and 3 are inefficient. Labor A. One Input L 0 Firms 8, 9, and 10 are inefficient. Labor B. Two Inputs Figure 6.5 Technical Efficiency and Inefficiency at the Firm Level L