Potential output is not purely a physical measure based on the number of workers and existing factories because: workers may be willing to work for less than they are paid. the value of machinery may fluctuate. factories may be technologically obsolete. workers may be replaced by machines.

Question

Graham Woodward

Business

27 November, 08:12

Potential output is not purely a physical measure based on the number of workers and existing factories because: workers may be willing to work for less than they are paid. the value of machinery may fluctuate. factories may be technologically obsolete. workers may be replaced by machines.

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Answers (2)

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Rayan Horton · Answer 1

workers may be replaced by machines.

Explanation:

Potential output is not purely a physical measure based on the number of workers and existing factories because: workers may be replaced by machines.

Economists define potential output as what can be produced if the economy were operating at maximum sustainable employment, where unemployment is at its natural rate.

Output in economics is the "quantity of goods or services produced in a given time period, by a firm, industry, or country". This will include output both by workers and machines

Benjamin Mclaughlin · Answer 2

factories may be technologically obsolete.

Explanation:

Potential output is usually defined as the total amount of output that a company can achieve if it efficiently uses all of its factors of production, including all its materials, labor, machinery, etc.

The problem with a simple numerical approach is what happens if the company uses its factors of production inefficiently. If the company's machinery is obsolete, then its potential output will be impossible to reach.