Y13 Microeconomics Notes

Efficiency | Notes

05 Dec 2025 • 1 min read

productive efficiency is achieved at the quantity where MC=AC
this is when firms minimise their average costs
this means firms are producing the maximum possible output at the minimum possible cost
in the long-run, it means firms are fully able to exploit their economies of scale
in a competitive market, firms can pass down lower costs to consumers in the form of lower prices
in a non-competitive market, firms could use their economies of scale to increase their market share, and then increease re-investment

allocative efficiency is achieved at the quantity where MC=AR
this is good for consumers because they benefit from an increase in output and a decrease in price
this leads to an increase in consumer surplus
consumer surplus is the difference between the price consumers pay and the maximum price they would be willing to pay
for example, Apple are not allocatively efficient as they set high prices.
this means that not that many people are willing and able to buy Apple products

dynamic efficiency is achieved when firms make supernormal profit in the long-run
this increases re-investment
consumers can get access to greater choice and higher quality in the future
for example, Apple re-invested most of their profits, which means every few years customers see a massive increase in the quality of their products e.g. Airpods

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