Control of the firm passed from the current management to a committee determined from the outside by the new investors. Those investors intend to shrink LTCM’s portfolio so as to reduce risk of loss and return the remaining capital to the investors as soon as practicable.
However, both the level and the growth rate of production are limited by the supply and quality of productive resources. If the employable resources are of poor quality, then output cannot increase unless there is a strong increase in the productivity of the resources already being used.