What indicates that a firm is becoming more efficient?

A decrease in average costs is a clear indication that a firm is becoming more efficient. When a firm lowers its average costs, it implies that it is producing more output relative to the costs incurred, or it is finding ways to produce the same amount of output at a lower cost. This improvement can stem from various factors such as economies of scale, better management practices, innovative production techniques, or advancements in technology that enhance productivity.

Lower average costs ensure that the firm can either reduce prices, potentially increasing demand, or maintain prices while improving profit margins. Therefore, this measure directly reflects enhanced efficiency in operations and resource utilization, which is a critical goal for any firm in a competitive market.