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Study Notes

X-Inefficiency

Level:
A-Level
Board:
AQA, Edexcel, OCR, IB

Last updated 22 Mar 2021

X-inefficiency happens when a lack of effective / real competition in a market or industry means that average costs are higher than they would be with competition

Rising average cost

Some common examples of x-inefficient behaviour include businesses happy with satisficing profits, permitting a degree of organisational slack, and rising average costs of labour as wages rise or over-manning occurs

The added complexity of businesses and senior and middle management with other aims such as the perks that come with high status jobs can also bring about higher costs.

Patents may lead to x-inefficiency, patents are legal barriers which prevent copying of names or concepts by rival firms these act as a barrier to entry meaning that new firms cannot enter/force existing firms to cut their prices or costs – there is no need for existing firms to cut costs

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