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Will a perfectly competitive market display productive efficiency? Why or why not?
Productive efficiency happens when the resources used in production are utilized to itsmaximum. In perfectly competitive industry, firms are producing at a price where profit is zero andthey will do their best to utilize maximum to lower the cost but they are not able to do so becausethey are in productive efficiency in long-run.
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Chapter 8
Perfect Competition
How Markets Work
Firm Behavior and the Organization of Industry
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productive efficiency talks about the proper allocation of inputs in order to get the most efficient, Um, allocation of outputs. How do you properly placed labor and capital in order that you minimize your costs and you can maximize your profits? So here I have a production possibility. Frontier between labor and capital are two inputs and I'm going to draw, for example, four points A, B, C and D. So which of these points is productively? Quote unquote, productively efficient at a. This is inefficient because you are not producing as much as you could be producing at Point D. This is, you know, impossible to do with our current resource is so on V because it is on the frontier. We can produce at that point so it could be productively efficient at sea. We can produce at that point so it could be productively efficient. But this isn't enough. In order to be productively efficient, we need to minimize our costs. It doesn't make sense for us to pay 10,000 times more than we need to Ah, for the same amount of output when we could pay 10,000 times less the other way right when we can minimize our costs. So in a perfectly competitive market, do we minimize our costs? Well, the answer is yes. When we draw a marginal benefit and are marginal cost curves we produced at the point at which they intersect, but in equilibrium, the point at which they intersect is also the point at which our average total cost curve is at its minimum.
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