6. efficiency Flashcards
what are the different types of efficiencies
allocative
productive
static
dynamic
X-inefficiency
Pareto
what is allocative efficiency
WHERE AC=MC
where consumer satisfaction is maximised, demand=supply
what is productive efficiency
WHERE AC=MC
where the maximum number of goods/services are produced at the lowest cost using all available resources - maximising economies of scale
either a point of the PPF curve of AC=MC
what is static efficiency
productive and allocative efficiency
what is dynamic efficinecy
concerened with productive efficiency (AC=MC) over time
a firm will be dynamically efficient if they are able to lower their AC over time by continuously implementing new techniques to lower costs (research and development)
what is X-inefficiency
where there is not the pressure to keep average costs low, there may be organisational slack and so AC is higher than where it should be
over staffing
unproductive managers
high pay rises
define efficiency
achieving a maximum productivity with minimum wasted effort or expence
what is pareto efficiency
occurs when it is impossible to make one party better off without making another worse off
occurs on a PPF
what is the problem with profit maximisation
when MC=MR there is the biggest gap between AC and AR meaning theres abnormal profit, but this means the firm isnt operating efficiently as prices are to high and output is too low
