3.4.1 Efficiency

Question 1

What is allocative efficiency

Answer 1

Where resources follow consumer demand, social welfare is maximised . This occurs when P=MC

Question 2

What is productive efficiency

Answer 2

• When a firms products have the lowest CPU/AC. Where ,MC=AC

Question 3

What is X-inefficiency and how can it happen

Answer 3

• When waste is produced and firms fail to minimise AC

Question 4

Why does X-inefficiency happen

Answer 4

• Monopolists may lock competition therefore no incentive to bring down costs

Question 5

What is dynamic efficiency ?

Answer 5

• The reinvestment of LR supernormal profit into new technology or R&D