Efficient Utilization of Resources in Manufacturing Firms

Input-output relationship, marginal productivity and marginal rate of technical substitution provide a useful insight about the potentiality of manufacturing firms. This study analyzes these important issues to describe the optimality in resource utilization of the manufacturing firms in the south-west region of Bangladesh. A translog production function has been estimated to describe the input-output relationship. The study findings indicate that the large scale firms have the opportunity to substitute capital for labor for producing the same level of output. On the other hand, scarcity in capital leads to lower productivity of labor in medium and small firms. Therefore, an increase in capital may lead to an increase in labor productivity as well as output for these small and medium firms. These medium and small firms can remain on the same output level by substituting labor for capital which may facilitate proper utilization of resources. The productive labor force may ensure proper utilization of the capital resources as well as the long run growth.