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3.4.1 EFFICIENCY, image, image, image, Long run average costs decrease,…
3.4.1 EFFICIENCY
X-INEFFICIENCY
When the firm is not producing on lowest point of ATC due to organisational slack or no incentives to reduce costs.
Only occurs in imperfect competition.
Allocative efficiency: where resources to produce goods are used where they are wanted and valued mostly highly to maximise social welfare. P=MC
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Dynamic efficiency: is when resources are allocated efficiently over time. Concerned with investment for new production techniques.
-Competition is needed as it encourages innovation and supernormal profits are needed
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Productive: no/ unlikely as there is no incentive
Allocative: no as P does not equal MC
X-inefficient: Yes as there is no incentive to produce at lowest ATC point
Dyanmic efficiency: Yes as there are supernormal profits.
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OLIGOPOLIES
Productive: no/ unliekly
Allocative: P does not equal MC
X-ineffieincy: possible
Dynamic efficiency possible.
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Productive: yes in long run
ALLOCATIVE: yes in long run
Dynamic efficient: no single firm will have enough information and finance.
