Efficiency Flashcards
(9 cards)
What is productive efficiency
When average total costs are at its lowest
Where MC=AC
Whats the condition for productive efficiency
MC=AC
What is allocative efficiency
Where welfare is maximised and society is happiest
MC=price / avg revenue
Allocative efficiency is when marginal costs equal…
Price , = average revenue , = demand
What is X-inefficiency
When a firm is producing above its average cost curve for a given level of output
How can you show an X-inefficiency
The gap between a firms average costs curve and their higher actual average costs
What is dynamic efficiency
How changing technology improves a firms potential output over time
What category do both allocative and productive efficiency fall under
Static efficient as they are at one point in time
When can firms only be dynamically efficient
When they are making supernormal profit
