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.
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