02 allocative efficiency

Using economic vocabulary, describe the cost structures of these two different

firms:

A. Prices to consumers?B. Positive for society?

C. Negatives?D. Food stamp effect?

Types of economic efficiency

Efficiency vocabulary

• Allocative efficiency

• MB > MC what should we do?• MB < MC what should we do?

• MB = MC best situation, using our allocations “best”

• Perfect Competition

Efficiency vocabulary

• Allocative efficiency• Monopoly• Monopolistic Comp• NO

Efficiency vocabulary

• Productive efficiency

• Lowest cost production• Min of ATC

Efficiency vocabulary

• Dynamic efficiency

• SUPER Normal Profit

• Reinvest into lower costs

• Productive Eff.• Productive Eff.• Dynamic Eff.

X

Y

Z

C

• Productive Eff.• Productive Eff.• Dynamic Eff.

BCD

Which prices would result in:Productive Eff.Productive Eff.Dynamic Eff.

PAGES 410-411• 3 quick debates

• How should we define this issue? • Efficiency? Production? Cost?

• Is monopoly efficient?

• Is monopoly fair?

• Is rent seeking justified?