business efficency

• What is the basic economic problem that economics aims to solve?

  Unlimited wants, scarce resources
• In a market economy, businesses answer the questions of what to produce and how to produce
• There are four types of economic efficiency: allocative, productive, X, and dynamic
• Where does allocative efficiency occur on a business diagram?

  Price equals marginal cost
• Allocative efficiency is achieved when net social benefit is maximized.
• Match the efficiency with its condition:

  Allocative efficiency ↔️ Price equals marginal cost

  Productive efficiency ↔️ Lowest point of average cost curve

  X efficiency ↔️ Production on average cost curve

  Dynamic efficiency ↔️ Long-run supernormal profit reinvestment
• Productive efficiency occurs when a firm minimizes its average costs
• What is the condition for productive efficiency on a diagram?

  Lowest point of average cost
• X efficiency occurs when a business minimizes its waste.
• At what point on the average cost curve does X efficiency occur?

  On the curve
• A monopolist may allow X inefficiency due to a lack of competitive drive
• X inefficiency can result from reducing wages or staff perks.
• Steps to achieve dynamic efficiency

  1️⃣ Generate supernormal profit

  2️⃣ Reinvest profit into new capital

  3️⃣ Upgrade technology

  4️⃣ Expand operations
• Dynamic efficiency focuses on improvements over time.
• Match the type of efficiency with its time orientation:

  Static efficiency ↔️ One specific point in time

  Dynamic efficiency ↔️ Over time
• Static efficiency includes allocative, productive, and X efficiency
• What are the three components of static efficiency?

  Allocative, productive, X
• The four main efficiencies in business are allocative, productive, dynamic, and X
• Allocative efficiency occurs when demand equals supply in a market.
• Allocative efficiency maximizes the sum of producer and consumer surplus
• On a business diagram, allocative efficiency occurs where price equals marginal cost.
• What does allocative efficiency mean for consumers?

  Resources meet consumer demand
• For producers, being allocatively efficient allows them to retain or increase their market share
• What is the condition for productive efficiency on a diagram?

  Marginal cost equals average cost
• Consumers benefit from productive efficiency through lower prices
• Lower costs from productive efficiency can increase producer profits.
• What is the definition of dynamic efficiency?

  Reinvesting supernormal profit into innovation
• Dynamic efficiency lowers long-run average costs
• Steps of how dynamic efficiency benefits consumers

  1️⃣ New, innovative products are created

  2️⃣ Lower average costs are achieved

  3️⃣ Prices decrease
• Dynamic efficiency requires the long-run existence of supernormal profit.
• What is the primary benefit of dynamic efficiency for producers?

  Long-run profit maximization
• X efficiency occurs when production has no waste
• Productive efficiency is the maximization of output at the lowest possible average cost.
• Ex-efficiency means that production takes place on any point on the average cost curve.
• Why is ex-efficiency good for consumers?

  Lower prices from minimized costs
• Ex-efficiency can lead to higher profits for producers due to lower costs.
• Allocative, productive, and ex-efficiency are examples of static efficiency
• Dynamic efficiency is a static efficiency.

  False