Th3.4: ^^ X-inefficiency Flashcards
When is a firm X-inefficient?
if it fails to minimise its average cost at a given level of of output, it is x-inefficient and there is organisational slack
What is this a specific type of and why?
specific type of productive inefficiency as it occurs when they fail to minimise their cost for that specific output
Look at the example here:
For example, the minimum point on the AC curve may be at 100 goods at a cost of
£5 each. The firm is producing 125 goods and so is not productively efficient. It costs
them £8 to produce each good, but they could produce 125 goods at £7. Therefore,
they are X-inefficient since they are not producing on the lowest AC curve
How can we tell if something is X-inefficient?
if they are not producing on the lowest AC curve
Where does X-inefficiency often occur?
where there is a lack of competition so firms have little incentive to cut costs