Discuss whether economic efficency as described in text books is likely to be achieved in practice.

Essay by kingkaisai2University, Master'sD, May 2006

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In an economy, there are many types of efficency. X inefficency, allocative efficency where MC=MR and paretian efficenct where production is at the production curve. There is also saocial efficency where MPC=MSB+MEB. These can be MEC achieved in reality or not.

X inefficncy is where the firm is producing efficiently. The processes, the combination of factors are used perfectly. This is where AC is lowest. The truth is this is really difficult to know whether a firm has achieved x efficency or not. Toyota may be producing at a lower Av cost than any other businesses but has it achieved x efficency. Beside the x efficency is where constant return of scale is occurring in the long run. That is the 5% increase in input gives the same % increase in out put, but firms do not necessarily want to produce at this output, monopoly will decrease output to increase price to macimise profit so it is not producing what it can and has excess capacity.

X effixcency mean no excess capacity or shortage of capacity. In theory x efficency can be achieved by firms in perfect competitions with unlimited consumers and unlimited suppliers, but a true perfect competition does not exist in the first place . At least perfect competition will have firms competeing hard to be x efficient as possible.

Allocative efficency is where MC=MR. This means immediately perfect competition is not allocative efficency because it is producing at price equals marginal cost. Allocative efficency is the aim of firms such as monopoly, monopolistic competition and oligopoly, But is it possible. MR is the revenue in a single increase in unit. MC is the cost in a single unit. MC is the cost of a single unit. Change in total revenue over quantity, change...