X-inefficiency refers to a situation in which a firm:

• A. fails to minimize costs for a given level of output
• B. produces at the point where marginal cost equals marginal revenue
• C. allocates resources to maximize social welfare
• D. achieves both allocative and productive efficiency

Answer: (A)

Verified step by step guidance

1. Understand the concept of X-inefficiency: It occurs when a firm does not minimize its costs for a given level of output, meaning it operates with higher costs than necessary.
2. Recall that productive efficiency means producing at the lowest possible cost, and allocative efficiency means producing the mix of goods most desired by society.
3. Recognize that producing where marginal cost equals marginal revenue is a condition for profit maximization, not necessarily related to X-inefficiency.
4. Identify that X-inefficiency specifically refers to the failure to minimize costs, which means the firm is not operating on its production possibility frontier.
5. Conclude that the correct interpretation of X-inefficiency is that the firm fails to minimize costs for a given level of output.