X-inefficiency
X-inefficiency (or X-ineffectiveness) occurs when a firm operates above its minimum average cost curve, incurring higher costs than necessary due to waste, slack, or poor management despite using the same inputs.
Real World
Before privatisation, British Telecom was widely criticised for overstaffing, slow service installation times, and outdated equipment — classic X-inefficiency resulting from its protected public-sector monopoly status.
Exam Focus
Show X-inefficiency on a diagram as the firm operating above the AC curve, not on it — this visual distinction earns marks.
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