Economics • Economic BasicsHard
Which of the following describes 'X-inefficiency' introduced by Harvey Liebenstein?
A. Allocative inefficiency caused by monopoly pricing above marginal cost
B. Productive inefficiency arising from a lack of competitive pressure leading to internal organizational slack✓ Correct Answer
C. Dynamic inefficiency resulting from underinvestment in research and development
D. External inefficiency caused by negative environmental spillovers
💡 Solution & Explanation
X-inefficiency occurs when a firm fails to achieve maximum output from its given inputs due to managerial slack, poor motivation, and lack of competitive pressure. Unlike allocative or dynamic inefficiencies which deal with pricing and investment, this concept focuses entirely on internal operational inefficiencies. Economists use this framework to study how monopolies often incur higher per-unit costs than competitive firms facing market discipline.
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