X-INEFFICIENCY

A graphic representation of the ‘gap’ a firm shows in its actual and minimum costs of supplying its products. As per the traditional theory of supply, firms always operate on minimum attainable costs. As opposed to this, x- inefficiency suggests that firms typically operate at higher costs than their minimum attainable costs. This takes place due to many inefficiencies (such as organising the works, lack of co-ordination, lack of motivation, bureaucratic rigidities, etc.). Large corporates usually face this problem as they lack effective competition which could ‘keep them on their toes’.