Long Run Dynamics and Efficiency

Question 1

perfect competition in the long run

Answer 1

in the long run, all factors of production are variable

there is free entry and exit

firms in a perfectly competitive market will earn zero economic profits

short run losses will cause some firms to exit the industry

Question 2

perfect competition and efficiency

Answer 2

perfect competition maximises consumer and producer surplus and therefore total surplus

Question 3

measures of efficiency

Answer 3

productive efficiency

allocative efficiency

dynamic efficiency

Question 4

productive efficiency

Answer 4

output is produced with the least-cost combination of resources

in the long run, this is achieved where LAC is at its minimum

Question 5

allocative efficiency

Answer 5

firms produce output that is most highly valued by consumers

firms are devoting exactly the amount of resources to this good that society wants them to devote

Question 6

dynamic efficiency

Answer 6

technology and innovation

over time this can also help firms achieve productive and allocative efficiency