Efficiencies Flashcards
1
Q
Allocative efficiency
A
Price = MC
2
Q
Productive efficiency
A
MC = AC
3
Q
X-inefficiency
A
Actual AC higher than potential AC
4
Q
What is X inefficiency caused by
A
Principal agent problem
5
Q
What is the principal agent problem
A
conflict of interest between managers and owners e.g. incurring extra costs such as flying first class rather than business class
6
Q
efficiency of scale
A
LRAC lowest point
7
Q
dynamic efficiency
A
re-investing supernormal profit and shifting the LRAC curve downwards
8
Q
Profit maximisation
A
MC = MR
9
Q
Revenue Maximisation
A
MR = 0
10
Q
Sales volume maximisation
A
AC= AR
