Question
Question 5 Productive efficiency occurs where: A Price equals average fixed cost B Price equals average revenue C Average cost equals marginal cost D Price equals average variable cost
Answer
3.9
(229 Votes)
Yasmin
Professional · Tutor for 6 years
Answer
C
Explanation
Productive efficiency, which is a concept in microeconomics, refers to a situation where an entity is producing goods at the lowest possible cost. Eventually, this means least wastage of resources. Things are described to be productively efficient when they are being produced at a minimum average total cost, hence ensuring economies of scale. Now, in economics, under perfect competition, where there is an efficient allocation of goods and services, price always equals the marginal cost in the long run. And when the entity is at equilibrium with both long run average cost and short run average cost, firms break even. Here, Average Cost equals Marginal Cost, which is one of the definitions of productive efficiency in economic terms. Thus, Productive efficiency occurs where Average Cost equals Marginal Cost.