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RESOURCE ALLOCATION
• Point x more products could be made with the resources available goods
are not being made using the least possible resources so there is
productive inefficiency.
Productive efficiency and Perfect
•
Competition
Competition can be seen to lead to productive efficiency this is the case as firms
are constrained to produce at the lowest possible cost in a competitive market.
• Firms have the incentive of profit to make their products at the lowest possible
cost: the lower the cost, the greater the possible profit
• The point of long-run equilibrium for a perfectly competitive firm is given by price p and output q.
At this point, it can be seen that the firm is producing at the lowest point on its average cost
curve. Tis means that there is productive efficiency.
Allocative Efficiency
• This occurs when firms produce the combination of
goods and services that are most wanted by consumers
•
Allocative efficiency