Explain the difference between productive efficiency and dynamic efficiency.

Dynamic efficiency is associated with the productive efficiency of a firm. However, dynamic efficiency is where a firm's super-normal profits are reinvested into technology and research and development to make their production process more cost-effective. On a diagram, this moves the firm's cost curves down as the average and marginal costs of production decrease due to, for example, a new machine reducing the labour hours, and hence costs of making widgets.
Productive efficiency is when a firm is producing at the lowest average cost per unit. This is where marginal cost equals average cost. Hence on a diagram it would be located at the intersection of these two curves.

MW
Answered by Michael W. Economics tutor

4675 Views

See similar Economics A Level tutors

Related Economics A Level answers

All answers ▸

What are some common points I can use in 15 an 25 mark questions?


What is market failure?


What are the main tools to used to meet the key economic objective of ecomic growth?


What are business cycles?


We're here to help

contact us iconContact ustelephone icon+44 (0) 203 773 6020
Facebook logoInstagram logoLinkedIn logo

MyTutor is part of the IXL family of brands:

© 2025 by IXL Learning