What is X-inefficiency? Why is it likely to occur in monopoly?
What will be an ideal response?
X-inefficiency is a situation where a firm’s production costs are greater than the minimum possible costs. If a firm chooses the most efficient technology from existing technologies, then the firm should be able to achieve the minimum average total cost for each level of output. When the firm does not achieve this minimum there is X-inefficiency. X-inefficiency occurs because there are internal problems such as bad management by the firm. If the managers have other goals than cost minimization for the firm, then this divergence of goals can lead to X-inefficiency. Monopoly firms are more prone to X-inefficiency than purely competitive firms because they face no effective price or market pressure to reduce costs at each given level of output.
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Figure 7-6
Which of the lines in Figure 7-6 represents a typical average fixed cost curve?
A. 1 B. 2 C. 3 D. 4
If we say that demand has increased, we mean that there has been
a. a leftward movement along the demand curve b. a rightward movement along the demand curve c. a leftward shift of the demand curve d. a rightward shift of the demand curve e. an increase in the slope of the demand curve
Breakfast anyone? Which of the following pairs best represents complementary goods?
a. bacon and saugage b. butter and margarine c. bacon and eggs d. toast and rolls e. coffee and tea
Hostile takeovers of corporations have been in the business news for some time now. Several states have passed laws making it harder for out-of-state corporations to acquire firms headquartered in their states. Several corporations have established
"golden parachutes" to give executives high payoffs in case of hostile takeover. What market imperfection is likely to be worsened by these actions? Explain.