Th3.4: Efficiency 2 Flashcards
Why does AC = AR?
since they can only make normal profit in the long run
Why does MR = MC?
since they profit maximise
Because MR does not equal AR and AC cannot equal MR, the firm will not be…
the firm will not be allocatively or productively efficient
Why are they likely to be dynamically efficient?
since there are differentiated products and so know that innovative products will give them an edge over their competitors and enable them to make supernormal profits in the short run
However, since the firms are small they may struggle to…
may struggle to receive finance or have the retained profits necessary to invest
In monopolistic competition compared to perfect competition…
less is sold at a higher price and firms may not necessarily be producing at the lowest cost
However, the market will offer…
greater variety and may be able to enjoy some economies of scale
