Question

Productive efficiency refers to multiple choice cost minimization, where p = minimum atc. production at a level where p = mc. maximizing profits by producing where mr = mc. setting tr = tc.

Answer 1

Productive efficiency occurs when firms produce goods at the lowest possible cost and on the production possibility frontier. In perfect competition, this is achieved in the long run when market price equals the minimum long-run average cost. It is closely related to allocative efficiency, where the price equals marginal cost.

Step-by-step explanation:

Productive efficiency refers to producing goods in a way that there is no waste, meaning production occurs at the lowest possible cost. This level of efficiency occurs when firms produce at a point on the production possibility frontier.

In perfectly competitive markets, productive efficiency is achieved in the long run because firms enter and exit the market, ensuring that the market price of a good is equal to the minimum of the long-run average cost curve. This state indicates that firms sell goods at the lowest average cost, which is the cost minimization aspect of productive efficiency.

Moreover, when perfectly competitive firms choose to produce the quantity where the price (P) is equal to the marginal cost (MC), not only do they attain productive efficiency, but they also achieve allocative efficiency. This ensures that the benefits to consumers, as indicated by their willingness to pay, are equal to the societal costs of producing one more unit of the good.