Final answer:
The correct option is 2). In the long-run equilibrium of a perfectly competitive market, a firm achieves productive efficiency by producing at the lowest average total cost. This condition also satisfies allocative efficiency, as the price equals the marginal cost, ensuring optimal resource distribution. Perfect competition achieves both efficiencies simultaneously.
Step-by-step explanation:
In long-run equilibrium, when a price (P) is equal to both the minimum average total cost (ATC) and marginal cost (MC), the firm is achieving productive efficiency. This happens in perfectly competitive markets, where firms maximize their profits by producing the quantity where P = MC. Such a condition ensures that firms produce and sell goods at the lowest possible average cost, without waste, meeting the condition for productive efficiency. At this point, the benefits to consumers, measured by the price they are willing to pay, are equal to the costs to society of producing marginal units, indicating allocative efficiency is also achieved.
Perfect competition is described as 'perfect' because it meets both allocative and productive efficiency in the long-run equilibrium. Firms in a perfectly competitive market produce at the lowest point on their long-run average cost curves (productive efficiency) and sell at a price equal to the marginal cost (allocative efficiency). This combination of efficient production and allocation leads to an optimal distribution of resources, satisfying consumers' needs and wants while minimizing the costs of production.