LS7

Question 1

Define efficiency

Answer 1

How well resources like time, talent or materials are used to produce goods
Scarce inputs to outputs

Question 2

What are the types of efficiency?

Answer 2

Productive efficiency: minimum cost per unit
Allocative efficiency: p=mc
Dynamic efficiency: change of efficiency over time
X efficiency: cutting costs

Question 3

What is productive efficiency?

Answer 3

Average production costs vary at different levels of output so produce with optimal combination of inputs at the minimum cost

Produce as much as possible with given resources
Static efficiency

Question 4

What’s allocative efficiency?

Answer 4

When goods and services are produced to match consumer demand and maximise welfare
No under or over consumption

Question 5

What is dynamic efficiency?

Answer 5

Knowledge and tech changes over time. Older factories now would’ve lost advantage so R&D leads to greater future efficiency so LRAC falls

Question 6

What is x efficiency?

Answer 6

Principle agent problem leads to this
A firm could be producing at a lower average cost but may not have an incentive to if they are a monopoly or make supernormal profit

LRAC is greater than potential LRAC