To reduce the Investment and the Incremental capital-output ratio the following approaches are to be accomplished:

I. Static efficiency 

II. Dynamic efficiency 

III. Allocative efficiency 

IV. Technical efficiency 

The correct answer is ​II, III, IV only.

Key Points

Incremental capital-output ratio

• ICOR refers to the additional capital required to generate additional output. Thus, it reflects how efficiently capital is being used to generate additional output.
• For example, if the 10% additional capital is required to push the overall output by a percent, the ICOR will be 10.
• ICOR = Annual Investment Capital/Annual Increase in GDP
• Lower the ICOR, the better it is.
• A higher ICOR indicates that production is inefficient as it requires more capital investment to generate the next unit of production.

Dynamic efficiency

• It is concerned with the productive efficiency of a firm over a period of time.
• A dynamically efficient firm will be reducing its cost curves by implementing new production processes.
• Dynamic efficiency will enable a reduction in both SRAC and LRAC.
• Therefore dynamic efficiency is concerned with the optimal rate of innovation and investment to improve production processes which helps to reduce the long-run average cost curves.

Static efficiency

• It is concerned with the most efficient combination of existing resources at a given point in time.
• Static efficiency involves the concept of productive efficiency – producing at the lowest point on the short-run average cost curve – given existing resources and factor inputs.
• Static efficiency is also concerned with allocative efficiency – the optimal distribution of resources in an economy.
• Static efficiency contrasts with dynamic efficiency. This is concerned with the development of better technology and working practices that improve the efficiency of production over a period of time.

Allocative efficiency

• It is a state of the economy in which production is aligned with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing.

Technical efficiency 

• It is the effectiveness with which a given set of inputs is used to produce an output.
• A firm is said to be technically efficient if a firm is producing the maximum output from the minimum quantity of inputs, such as labor, capital, and technology.
• ​Hence, Option 4 is correct.