efficiencies Flashcards
What does productive efficiency entail in economics?
Productive efficiency involves producing goods/services at the lowest cost per unit.
How is productive efficiency achieved within a firm?
Firms achieve productive efficiency by using the optimal combination of inputs for maximum output.
Can you explain where productive efficiency occurs on an average costs curve?
Productive efficiency occurs at the lowest point on the average costs curve.
Define allocative efficiency in economics.
Allocative efficiency is the distribution of goods/services according to consumer preferences.
What condition must be met for allocative efficiency to exist?
Allocative efficiency exists when the price equals Marginal Cost (MC) of production.
How is allocative efficiency depicted on a graph?
On a graph, allocative efficiency is depicted where the price equals the MC, at the intersection of MC and the Demand curve.
What factors contribute to X-Inefficiency?
X-Inefficiency arises due to the absence of competition, leading to complacency among firms.
How does the absence of competition impact a firm’s efficiency?
Firms operating without competitive pressure may operate above potential average cost, lacking cost-cutting incentives.
Explain the illustration of X-Inefficiency on an average costs curve.
On an average costs curve, X-Inefficiency is illustrated by the AC curve drawn higher than it could be with competitive pressure.
Describe dynamic efficiency in economics.
Dynamic efficiency refers to efficiency over time, adapting to technological advancements.
What factors contribute to dynamic efficiency over time?
Factors contributing to dynamic efficiency include innovation, R&D investment, and technological progress.
How does supernormal profit relate to a firm’s ability to achieve dynamic efficiency?
Supernormal profits enable firms to invest more in R&D, contributing to dynamic efficiency.
How does competition influence productive efficiency in markets?
Competitive pressure encourages firms to achieve productive efficiency, while lack of competition may lead to X-Inefficiency.
What challenges might monopolies face regarding allocative efficiency?
Monopolies might face challenges in achieving allocative efficiency due to the absence of competitive pressures.
Can you compare the impact of different market structures on efficiency?
Different market structures have varying impacts on efficiency, with competitive markets typically promoting higher efficiency.
