Dynamic efficiency
Dynamic efficiency refers to a firm's incentive and ability to innovate, invest in research and development, and improve products and processes over time, creating long-term technological progress and economic growth.
Real World
Dyson reinvested supernormal profits from bagless vacuum cleaners into developing digital motors and solid-state battery technology, improving products over decades — a clear case of dynamic efficiency funded by market power.
Exam Focus
Use dynamic efficiency to evaluate monopoly positively — supernormal profits can fund R&D that benefits consumers long-run.
How well did you know this?