Question
Asked Nov 9, 2019
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What are the main causes of inefficiency in most firms? Should firms use accounting profits or economics profits when deciding how much to produce?

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Expert Answer

Step 1

The main causes of inefficiency in firms are:

  1. Poor leadership: When the leader does not possess good leadership skills then due to poor leadership in the decision-making process leads to inefficiency in firms’ operations.
  2. Inefficient Staff: The hiring staff that is not suitable for performing the required process leads to inefficiency in firms’ operations that means if the hired staff is not efficient then it leads to poor productivity.
  3. Unfavorable work environment: The workplace should be favorable to the hired staff So; they can work efficiently. In other words, it means that the unfavorable work environment leads to inefficient operations.
Step 2

Explicit Cost is the cost paid to factors of production that are hired from outsiders.

Implicit Cost is the cost of the owner's self-supplied factors of production.

Economic Profit considers both implicit and explicit costs wh...

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