a) Types of efficiency

a) allocative efficiency

b) productive efficiency

c) dynamic efficiency

d) x-inefficiency

allocative efficiency = when a firm produces the most desired output and output level by consumers

• no excess supply/excess demand

• maximises consumer surplus/producer surplus

• MC = AR

productive efficiency = when a firm produces the maximum output with the minimum input

• ATC is minimised

• no resources are wasted

• MC = AC

dynamic efficiency = when a firm reinvests its profit

• upgrades capital/product

• reduces LRAC

x-inefficiency = when a firm produces with a higher ATC than necessary

• lack of competition