The term productive efficiency refers to:
Select one:
a. the short-run equilibrium for a competitive firm.
b.the production of all goods and services that consumers want.
c. the production of a good at the lowest long-run average cost.
d. the equality between average total and average variable cost.
e.satisfying the condition of equality between marginal cost and marginal revenue.
The Correct Answer and Explanation is :
Correct Answer:
c. the production of a good at the lowest long-run average cost.
Explanation:
Productive efficiency refers to a situation in which a firm produces goods and services at the lowest possible cost. This occurs when a firm operates at the minimum point of its long-run average cost (LRAC) curve, meaning it is using all its resources in the most cost-effective way without any waste.
In a perfectly competitive market, firms strive for productive efficiency because, in the long run, competition forces them to minimize costs to stay profitable. If a firm produces above the lowest possible cost, competitors that produce more efficiently can offer lower prices, driving inefficient firms out of the market.
Key aspects of productive efficiency include:
- Optimal Resource Utilization – Firms maximize the use of labor, capital, and raw materials without wastage.
- Economies of Scale – Firms benefit from lower per-unit costs as they increase production.
- Long-Run Perspective – Unlike the short-run, where firms might face temporary inefficiencies, productive efficiency considers the most sustainable cost levels over time.
- Cost Minimization – Achieved when firms use the best combination of inputs and technologies to produce output at the lowest cost.
Productive efficiency is distinct from allocative efficiency, which occurs when goods are distributed according to consumer preferences (where price equals marginal cost, P = MC). While productive efficiency ensures cost-effective production, allocative efficiency ensures that resources are allocated to their highest-valued use.
Thus, the correct answer is (c) the production of a good at the lowest long-run average cost, as it best defines the concept of productive efficiency.
Now, I’ll generate an image illustrating productive efficiency.
Here is an infographic illustrating productive efficiency, including a graph of the long-run average cost (LRAC) curve and key economic concepts related to cost minimization and optimal production. Let me know if you need any modifications!
