Abstract
Microeconomic efficiency in the Polish enterprise has been an important aspect of nearly all economic reforms in Poland. This paper develops a model of a hypothetical Polish enterprise during the NEM period. The enterprise is viewed as maximizing an objective function which is a linear combination of production added and profits within a short run planning period. The optimality conditions for factor usage are derived and compared with the efficient (profit maximizing) firm. It is found that an increase in the emphasis on production added in the evaluation of enterprise performance (in an attempt by central planners to increase output) may yield results contrary to the central planners' desires. Output will actually fall unless enterprises receive a higher level of subsidies. A brief discussion of the institutional characteristics unique to the Polish economic system is presented as well.
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