1. Efficiency

2. Overview of the five areas for topic 3.4
3.4.1 Efficiency
3.4.2 Perfect competition
3.4.3 Monopolistic competition
3.4.4 Oligopoly
3.4.5 Monopoly

3. Candidates should be able to:
Efficiency syllabus
Candidates should be able to:
Distinguish between productive and allocative efficiency
Find the minimum point on the average total cost curve and use the fact that this is the most productively efficient point
Use the fact that allocative efficiency occurs where price is equal to marginal cost
Define dynamic efficiency
Define inefficiency and, in particular, x-inefficiency
Assess efficiency/inefficiency in different market structures

4. Definitions – from A2 Economics
Efficiency refers to how well resources are used.
Allocative efficiency occurs when price equals marginal cost. What is the formula?
Productive efficiency exists when production is achieved at lowest cost (AC are at their lowest point). Formula?
Both of these are static in the short term.
Dynamic efficiency looks at how, in the long term, new technology and productive techniques can increase the productive potential of firms.

5. Productive efficiency and PPF – from AS
Sketch a PPF
What does it show?
Points on the curve show that the economy is both ______________ and ________________ efficient.
When does allocative efficiency occur? Productive efficiency?:
Allocative efficiency is where
Productive efficiency is where

6. Diagram with profit and revenue maximisation
Sketch a large diagram with falling price and show MC, MR and AR
Where will firms produce if they want to maximise profits?
Where will firms produce if they are maximising revenue?

7. Allocative efficiency
Allocative efficiency occurs when the value consumers put on a good equals the cost of producing the good.
When price = marginal cost (i.e. MC = ___) then the firm is allocatively efficient.
Transferring resources when price is below marginal cost to resources when price is above marginal cost is allocatively efficient.
On the next slide, draw a diagram showing falling price, mark on AR, MR, MC and show the allocative efficient output.

8. Allocative efficiency – sketch MC, AR and MR

9. Productive efficiency
Productive efficiency occurs when output is achieved at the minimum average cost
If MC = ATC then the firm is producing at the minimum point on the average cost curve and is therefore productively efficient. Sketch this

10. Write down the 7 formula without looking them up!

11. Definitions: x–inefficiency
Inefficiency means not obtaining the maximum output from the use of resources and it is costly to the economy
X-inefficiency (organisational slack) exists when a firm operates within (rather than on) its average cost boundary. Average costs are higher than they could be.
It occurs when a firm incurs ____________________.
This could be due to:

12. x–inefficiency diagramB
What does point A show? Point B?