Market structure, static efficiency, dynamic efficiency and resource allocation Flashcards
1
Q
What do economists use to determine whether a firm is good or bad for society
A
Economists use measures of efficiency
2
Q
State the 4 types of efficiency
A
- productive efficiency
- allocative efficiency
- X-efficiency
- dynamic efficiency
3
Q
Define productive efficiency and state where this is on the cost/rev curve
A
when average cost is at its lowest.
- this is where MC=AC
4
Q
Define allocative efficiency and state where this occurs on a cost/rev curve
A
where welfare is maximised and society is happiest.
- occurs where MC=AR
5
Q
Define X-inefficiency
A
when for any given output, firms costs are above the AC curve (when a firm is producingaboveits average cost curve for agivenlevel of output.
6
Q
Define dynamic efficiency
A
how changing technology improves a firms output potential overtime
7
Q
Describe how a firm can become dynamically efficient
A
- firms need to invest into R&D.
- To be able to invest into R&D and better capital, firms need to makesupernormal profit, so they have extra profit available for investment.
- By doing this, they can improve their output potential, enhance the production process or develop new products. this helps firms come up with innovations to change the world
