If productive efficiency characterizes a market
A)the marginal cost of production is minimized.
B)firms produce the goods that consumers desire most.
C)the output is being produced at the lowest possible cost.
D)firms use the best technology available to produce the good.

Question

Quizplus · Accepted Answer

Productive efficiency means that output is being produced at the lowest possible cost, which implies the minimization of average total cost (ATC) and marginal cost (MC) of production. In other words, firms are using their resources (inputs) as efficiently as possible, without wasting any of them. As a result, they can produce more goods or services with the same amount of inputs or produce the same amount of goods or services with fewer inputs, which lowers their costs and allows them to increase their profits or reduce their prices, which benefits consumers. Consequently, productive efficiency results in a Pareto-optimal allocation of resources, where no one can be made better off without making someone worse off. However, productive efficiency does not necessarily imply allocative efficiency, which requires that the right goods and services are produced in the right quantities, based on their relative prices and marginal costs and benefits. Therefore, even if the market is productively efficient, it may not be allocatively efficient if the prices and quantities do not reflect the true value of the goods and services to consumers and producers.

If Productive Efficiency Characterizes a Market