< Back
Larger context for LACK in Corpus USbrown_UKbncw/UK_bncw.txt

Thirdly, in economic theory it is presumed that any level of output is always produced at the lowest technically feasible cost.
For the economist, inefficiency arises because the wrong level of output is produced.
However, in the real world there is an additional concept of efficiency, which takes cognisance of the fact that real firms are never as technically efficient as the theorists' firm.
This type of inefficiency arises because workers and management are often ill-equipped or lacking in motivation and so do not perform to the best of their abilities.
Inefficiency of this sort, which involves a given level of output being produced at a cost which is higher than the theoretical minimum, is termed X- inefficiency.
It is what management and business schools try to eradicate through education and training.
It is what the common man understands by "inefficiency".
Clearly such inefficiency is incompatible with perfectcompetition where the competitive threat would be sufficient to remove any less efficient firm.
However, in monopoly markets X-inefficiency could arise, because of the absence of competitive discipline.
This would seem to strengthen the case against monopoly, for now there is reason to believe that a movement towards monopoly could lead to higher costs through the creation of X-inefficiency.
This would offset, to some extent, any cost reductions due to economies of scale.