3.4 Market structures

Question 1

3.4.1 A)
Allocative effciency

Answer 1

When rescourses allocated in a way which maximises consumer satification / welfare P/AC = MC

Form can achieve AE when they have correct info about consumers

when the value to society from consumption is equal to the marginal cost of production

Question 2

3.4.1 B)
Productive efficiency

Answer 2

When a firm produces at the lowest point of AC curve
This is where Economies of scale are fully explioted anymore and diseconomies will be experienced.
Able to change output through mergers, demegers and expansion.

Question 3

3.4.1 C)
Dynamic efficiency

Answer 3

When resources are allocated efficenley over time. Its linked to investment which brings new production techniques and products over time.

alternative is static effcicnecy which looks at a set point in time. Ex: Allocative and productive effciency.

Dynamic efficiency will be achieved in markets where competition encourages innovation need profit incentive.

Question 4

3.4.1 D)
X-inefficiency

Answer 4

If a firm fails to minimise its average costs at a given level of output, it is X-inefficient and there is organisational slack.

they are X-inefficient since they are not producing on the lowest AC curve. It often occurs where there is a lack of competition so firms have little incentive to cut costs.

Question 5

3.4.2 )
What is perfect competitve market

Answer 5

Where there is a high degree of competiion. however doesnnt max welfare of productive ideal results.

Question 6

3.4.2 A)
Char of perfect comp

Answer 6

• DD for firms good is perfectly elastic. firms are price takers
• there must be many buyers and selles no 1 or customer can influence market
  -must be freedom of entry and exit from the industry important means that when a busniess is making profit anyone can enter that market and produce themselves.
  -must be perfect knowledge enables firms to know when other firm are making profit to attract them into marker
• product must be homogenous (idenitcal) so its impossible to tell diff between one another making qual not a diff in price

Question 7

3.4.2 B)
Profit max in SR LR

Answer 7

In SR profit max possible MC=MR possible to make NP SNP and Loss. However in LR can only make NP

Question 8

3.4.2 C)
Diagrammatic analysis

Answer 8

Redbook

Question 9

3.4.2 )
Efficency

Answer 9

perfect comp is productive eff since MC=AC also allocative eff p=mc static eff

not dynamic no signle forms has enought for R&D small firms struggle to revice fiance. Perfect info means one firms investment gives no indivdiual benifit. leads to govt to do it.