Economics question? need help with x-inefficiency?

Posted on 2014-12-08 08:15:00 in Economics by MOE

1. Define X-inefficiency





A. It is when firms rely on reverse engineering to produce their goods.



B. It is when firms do not effectively deal with the monitoring problem.



C. It is when firms produce where quantity supplied equals quantity demanded.



D. It is when firms do not operate at their maximum potential technical efficiency.







2. Can a perfect competitor be X-inefficient in the long run? Explain why or why not.





A. Yes. A perfectly competitive firm can translate profit into X-inefficiency.



B. Yes. A perfectly competitive firm will just earn lower profits as compared to efficient firms.



C. No. The economic forces of a market would knock a perfectly competitive firm out of business if it operated less efficiently than the rest of the market. Only a monopolist can produce inefficiently and remain in the game.



D. No. The degree of competitiveness places a limit on firms’ laziness. Since perfect competition is the least competitive market structure, these firms will go out of business if they are inefficient.

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