If for a firm P = minimum ATC = MC, then
A) neither allocative efficiency nor productive efficiency is being achieved.
B) productive efficiency is being achieved, but allocative efficiency is not.
C) both allocative efficiency and productive efficiency are being achieved.
D) allocative efficiency is being achieved, but productive efficiency is not.

Question

Quizplus · Accepted Answer

When P=minimum ATC=MC, the firm is producing at the point where both allocative efficiency and productive efficiency are being achieved.

Allocative efficiency means that the price of a good reflects the marginal cost of producing it. At P=MC, the firm is producing a quantity where the consumer’s willingness to pay equals the marginal cost of producing it. This ensures that resources are being used efficiently and there is no deadweight loss.

Productive efficiency means that the production of a good is achieved at the lowest possible cost. When P=minimum ATC, the firm is producing at the lowest possible cost per unit.

Therefore, both allocative efficiency and productive efficiency are being achieved at P=minimum ATC=MC.

If for a Firm P = Minimum ATC = MC