Efficiency

• Static efficiency is the most efficient combination of existing resources at a given point in time
• Productive efficiency (Mc=Ac) is when a firm is producing at the lowest average costs
• Allocative efficiency (AR=MC). The price that consumers are willing to pay is equal to the marginal cost
• Dynamic efficiency is where unit costs are lowered over time through methods such as investment
• Consumer surplus is the additional amount that consumers are willing to pay over the equilibrium price
• Producer surplus is the amount below the equilibrium price that producers are willing to accept
• Total welfare is the sum of consumer and producer surpluses