X-Inefficiency

X-Inefficiency is the difference between the true behavior of a firm and the effiecient limit of the cost curves. This difference is a result of imperfect competition, which does not force firms to produce at the lowest costs possible. Workers may be lazy, firms might not be willing to improve technology, or firms may have a strong incentive not to produce at the minimum average total cost in order to increase production beyond its natural position and thus drive other firms from the industry. X-inefficiency only measures whether a firm is producing the most amount of output given a specific level of input. It does not measure whether the firm is using the proper type of input or if it is creating the optimal kind of product. It is sometimes caused by sociologically embedded problems which prevent the firm from changing tradition, even to make things move more smoothly. Sometimes, this can cause firms to lose money, when they should be making at least normal profits, which the firm may be able to use to convince the government to subsidize the industry, if it is a particularly important industry.

Sample Question: Which of these is (are) the clearest example(s) of X-inefficiency? A: producing only glue bottles when people only want tape B: producing so much that each additional carrot peeler costs a million dollars C: hiring only members of the CEO's (very) extended family, so that they all type two words per minute D: allowing malfunctioning robot arms to destroy half of the total output of cashews Answer at bottom The different levels of efficiency.

He is an example of the x efficiency becasue if you were to give him the job his preformance level would not allow the company to be the most productivly effient as they could be.

http://en.wikipedia.org/wiki/X-efficiency http://www.12manage.com/description_x_efficiency.html http://www.maths.tcd.ie/local/JUNK/econrev/ser/html/morton.html

Answer to sample question C AND D!!!!!!!!!!!!!!!!!!!!!!!!!