Economics --> Market failureWatch
How could this make the firm less efficient and why?
Any answers appreciated
If the firm your talking about is also a monopoly this may even be worse as a monopoly doesn't need to improve as a firm since they have market control and will simply sit on the profits since they don't have any competition to drive them to improve.
Though, you could evaluate your point in an essay and state that a subsidy may increase the efficiency of firms since the money can be invested into technological innovation or higher working wages in order to increase the efficiency of firms to produce more.
Note that if the government fails to correct market failure such as this subsidy example, this is referred to as government failure
- the subsidy isn't large enough
- with the extra money they pay 'overpay' workers (paying more than what's most efficient)
The main one would be that the firm doesn't use it to make their production more efficient; a good evaluation point could be that e.g. the government give the firm the subsidy provided that the subsidy is used for research & development