efficiencies / maxing

Question 1

Allocative Efficiency

Answer 1

**average revenue = marginal cost (AR = MC / P=MC)
**resources are allocated in a way that consumers and producers receive the maximum possible benefit

Question 2

Productive Efficiency

Answer 2

where marginal cost = average cost (MC=AC)
At this point, average costs are minimised
There is no wastage of scarce resources and there is a high level of factor productivity

Question 3

Dynamic Efficiency

Answer 3

Long-term efficiency is a result of innovation as a firm reinvests its profits
It results in improvements to manufacturing methods
This lowers both the short-run and long-run average total costs

Question 4

X-inefficiency

Answer 4

Occurs when a firm lacks the incentive to control production costs. Slack occurs as a consequence
The ATC is higher than it should be
It often occurs in an industry if there is a lack of competition or in a firm that is not accountable for making a loss (e.g. some government owned companies)

Question 5

💸 1. Profit Maximisation