Market structure, static and dynamic efficiency...

• What does static efficiency describe?

  Efficiency at one point in time
• What is dynamic efficiency concerned with?

  New technology and productivity increases
• What occurs at the lowest point on the average cost curve?

  Productive efficiency
• What is the condition for productive efficiency?

  Firms minimize their average total costs
• What does MC = AC signify?

  Point of productive efficiency
• What does allocative efficiency maximize?

  Utility for consumers
• At what condition does allocative efficiency exist?

  P = MC
• What is a characteristic of free markets?

  They are allocatively efficient
• What influences dynamic efficiency?

  Research, development, and investment
• What leads to falling long run average costs?

  Optimum level of innovation
• How is dynamic efficiency related to consumer needs?

  It meets needs over time
• What might dynamic efficiency lead to in the future?

  Lower production costs or new products
• What short run factors affect dynamic efficiency?

  Demand, interest rates, past profitability
• What might short run costs be increased for?

  To cause long run costs to fall
• How can dynamic efficiency be evaluated?

  By considering long time lags of investment
• What trade-off might firms face regarding dynamic efficiency?

  Dividends versus making investments
• What is x-inefficiency?

  Producing within the AC boundary
• What causes x-inefficiency?

  Higher costs than competitive markets
• What does the point 'X' on the diagram represent?

  X-inefficiency
• What might cause x-inefficiency in firms?

  Organizational slack or poor management
• Why do monopolies tend to be x-inefficient?

  Little incentive to lower average costs