Efficiency Flashcards
What are the types of efficiency
Static vs dynamic
Allocative, productive and x efficiency are all static
Dynamic efficiency is about changes of static efficiency over time and relies on profits in order for investment to occur
When does allocative efficiency occur
When MB = MC. Allocatively efficient because when MB and MC aren’t equal profit isn’t maximised
(AR=MC)
What is productive efficiency
When production occurs at the lowest cost. When production occurs at minimum ATC
AR =min ATC
What is x inefficiency
A type of productive inefficiency, which occurs when firms are not fully exposed to competitive pressures and firms are operating at a higher ATC than necessary.
What is Pareto efficiency
When overall welfare is maximised. Resources and goods are allocated to maximum efficiency
Can firms in PC be dynamically efficient
No because they make no profit
