ECON REVISION MICRO.pdf - EFFICIENCY STATICu200b a set...

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EFFICIENCY - STATIC - a set point in time - Allocative P=MC resources are used to produce goods/services which consumers want/value highest, social welfare is maximised - P roductive MC=AC products are produced at the lowest average cost, fewest resources are used - Dynamic resources are allocated efficiently over time---> supernormal profits - X-inefficiency- fails to minimize average costs, (not at lowest point of AC curve) managerial slack---> lack of competition, little incentive to lower costs PERFECT COMPETITION 1. many/infinite buyers/sellers productive+allocative (all static) 2. No barriers to entry not dynamic, no EOS 3. Perfect knowledge 4. Products are homogenous profit maximization MC+MR 5. Price takers (elastic demand) - Can only profit maximise in the short run-- making supernormal profits

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