Efficiency and Shut Down Points Flashcards
where is a firms short run shut down point
AR=AVC
when should a firm shut down immediately
when the price doesn’t cover AVC as each unit produced is only contributing to a loss
when can a firm continue to produce in the short term
when the price covers the AVC (is above AVC) as each unit sold will be making a contribution towards the fixed costs
if a firm wants to operate in the long run what must the price cover
AC - both fixed and variable
where is a firm’s long term shut down point
where AR=AC
what is allocative efficiency
the allocation of resources matches consumer preferences
where is allocative efficiency
AR=MC
what is productive efficiency
when a firm minimises its average costs of production
where is productive efficiency
MC=AC
what is a firm deemed if it is not productively efficient
x-inefficient
what are the types of static efficiency
allocative
productive
what is dynamic efficiency
efficiency over a period of time where it invest in R&D, and physical and human capital
what type of efficiencies do perfectly competitive markets achieve
productive efficiency
allocative efficiency
(static efficiencies)
what type of efficiency do perfectly competitive markets not achieve and why
dynamic efficiency because they only make normal profits so do not have enough to invest
what type of efficiency do monopoly and oligopoly markets achieve and why
dynamic efficiency because they have supernormal profits that they can use to reinvest
