What Is Efficiency? What Is Effectiveness? Imagine You Manage a Local

question 15

Essay

What is efficiency? What is effectiveness? Imagine you manage a local gas station. Which criteria might you use to determine your efficiency as a manager? Which criteria might you use to determine your effectiveness?

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Definitions:

Average Total Cost

The total cost of production divided by the quantity produced, taking into account both fixed and variable costs.

Excess Capacity

The situation where a company is producing less than its full potential output due to lack of demand or other constraints.

Efficient Scale

The level of production at which a firm achieves the lowest average total cost, with economies of scale fully exploited.

Business-Stealing Externality

Negative impacts on existing firms due to entry of new competitors, which can steal customers and reduce profits.