CAIE A-Level Economics 7.3.4 Dynamic Efficiency

Practise identifying dynamic efficiency as innovation or investment that lowers future long-run average cost and linking retained profit, research and technology to that shift.

Exam points

identify dynamic efficiency from a downward shift, not movement along, the LRAC curve
link retained profits, research or new technology to innovation and lower future unit costs
explain how larger dividends or weaker reinvestment can reduce dynamic efficiency over time

[Maximum number: 1]

How is dynamic efficiency represented on a diagram?

a downward move to the minimum point of a long-run average cost curve

a downward shift in the long-run average cost curve

a move from a point inside a production possibility curve to a point on it

a reduction in marginal revenue so that it equals long-run marginal cost

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7.3.4—Dynamic efficiency question 1