X-inefficiency refers to the situation in which:
A)highly competitive firms have less incentive to minimize their costs of production than other firms because the highly competitive firms have almost no chance to earn above-average profits.
B)firms are unable to minimize their costs of production because there is no potential for input substitution.
C)firms that use labor-intensive production methods tend to be less efficient than firms that use capital-intensive production methods.
D)firms with market power have less incentive to minimize their costs of production than more competitive firms.

Question

Quizplus · Accepted Answer

X-inefficiency refers to the situation in which firms with market power (i.e., those with the ability to set prices higher than their marginal costs) have less incentive to minimize their costs of production than more competitive firms. As a result, X-inefficiency can lead to higher costs and lower productivity in the economy as a whole.

X-Inefficiency Refers to the Situation in Which