efficiency Flashcards
where is productive efficiency
lowest point of the AC
what is productive efficiency
when the maximum amount of goods and services are produced with a given amount of inputs
a firm must be on its production possibility frontier
where is allocative efficiency
MU=MC
when is there allocative efficiency
when goods and services are distributed according to consumer preferences
when the price = MC of production
x efficiency
when firms have no incentive to cut costs
e.g. of x efficiency
a monopoly making abnormal profit will have no incentive to get rid of surplus labour
when is a firm x efficient
average costs are higher than potential
dynamic efficiecny
involves the introduction of new technology and working practices to reduce costs over time
what does dynamic efficiency reduce
both SRAS and LRAS
trade off in dynamic efficiency
high investment costs in new technology to achieve higher production and lower costs in the long run
