What kind of efficiency is achieved if P = MR = MC != the minimum ATC? a. productive efficiency b. allocative efficiency c. neither productive nor allocative efficient d. both productive and allocative efficient
The correct answer and explanation is:
Correct Answer: b. allocative efficiency
Explanation:
To determine the type of efficiency achieved, we must understand the conditions for productive and allocative efficiency in economic theory:
✅ Allocative Efficiency
Occurs when resources are allocated in a way that maximizes societal welfare — that is, producing the mix of goods most desired by society.
This happens when the price (P) equals marginal cost (MC):
- P = MC → the value consumers place on a good equals the cost of producing it.
In this question:
- P = MR = MC → So allocative efficiency is achieved.
❌ Productive Efficiency
Happens when goods are produced at the lowest possible cost, which occurs when the firm is operating at the minimum point of average total cost (ATC).
In this case:
- MC ≠ minimum ATC, which means the firm is not producing at the lowest cost, so productive efficiency is not achieved.
📌 Summary:
- Allocative Efficiency: ✅ Yes, because P = MC.
- Productive Efficiency: ❌ No, because output is not at the minimum ATC.
💡 Economic Context:
In perfect competition, both allocative and productive efficiency are typically achieved in the long run:
- P = MC (allocative)
- MC = minimum ATC (productive)
But in short-run conditions, or in some monopolistically competitive markets, we might have:
- P = MC (allocative efficiency)
- But P > minimum ATC (no productive efficiency)
This question describes such a situation. Therefore, the only efficiency achieved is allocative efficiency.
✅ Final Answer:
b. allocative efficiency