Efficiency Flashcards
Define Efficiency
The relationship between scare inputs and the output generated
What is allocative efficiency
When the cost of production and the demands of consumers are taken into account to maximise welfare
What is Dynamic Efficiency
Type of efficiency that looks at how changes in technology and productive techniques over time will increase the productive potential of a firm
What is X Efficiency
When the average cost is higher than the lowest possible average cost
What is Productive Efficiency
When the firm is producing at the lowest cost per unit of output - when the firm is producing as much as possible relative to inputs
Where does Productive efficiency occur on a graph
Where the marginal cost intersects the average cost
What do firms charge on Allocative Efficiency, what is it also called and where does it occur
The price equal to the marginal cost of manufacturing the good
Welfare Maximisation
It occurs where the price charged for the last unit is equal to the cost of making the last unit - net welfare falls if any more units are produced
Where does X-inefficiency occur on the graph and in which markets and why
When a firm operated above the AC curve
It happens in highly concentrated markets because firms are able to make supernormal profits and have an AR that is greater than their AC
