Firms that fail to compete with lower prices and/or better products will go bankrupt. Does this...
Firms that fail to compete with lower prices and/or better products will go bankrupt. Does this increase or decrease economic efficiency? Why?
Homework Answers
It increases the economic efficiency in the market, economic efficiency is a sum of allocative efficiency and productive efficiency. if the firm in the market is charging more for a good that means they are not productive efficient i.e. somewhere during the production they are wasting the resources that is increasing the cost.
If these firms are driven out of the market due to increased competition then the resources will be free and that can be used by some other firms more efficiently.
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