Economic efficiency

Figure 5 shows the average cost (AC), marginal cost (MC), average revenue (AR) and marginal revenue (MR) curves for a firm in a perfectly competitive market. The entry of new firms shifts the AR and MR curves from AR₁ = MR₁ to AR₂ = MR₂.

All other things being equal, which one of the following combinations of statements would be correct for a profit-maximising firm?

A firm has a downward-sloping average revenue curve and a U-shaped average total cost curve. Which one of the following meets the condition required for the firm to be productively efficient?

The firm is producing the quantity at which

Explain why, in long-run equilibrium, monopolistically competitive markets are neither productively nor allocatively efficient.

Assess the view that competition policy is likely to lead to markets becoming less efficient in the long run.

Discuss the view that privatisation is always beneficial because it leads to improvements in efficiency.

Explain how perfect competition should lead to outcomes which are both productively and allocatively efficient.

Evaluate the view that a firm making low profits must be inefficiently managed.

Explain how the data in Extract A (Figure 2) show that the UK parcels delivery market is displaying dynamic efficiency.

The diagram below shows the cost and revenue curves for a monopoly.

At which one of the following levels of output would the firm be productively efficient?