ATC and minimum efficiency
Please help with the following problem regarding competition.
In the purely competitive long-run equilibrium, P = minimum ATC = MC. Of what significance for economic efficiency is the equality of P and Minimum ATC? Of what significance is the equality of P and MC? Distinguish between productive efficiency and allocative efficiency
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Hello!
The fact that the perfect competition equilibrium happens at the point where P = Minimum ATC implies that this market is achieving productive efficieny. Productive efficiency refers to the situation where firms are producing at the minimum possible average total cost. This situation is 'forced' in a perfectly competitive market. Why? Let's assume that the existent firms that are operating in a perfectly competitive market are currently producing at an average cost of $4, and the market price is $4 too (recal that under perfect competition, firms have zero profits). Let's also assume that current ...
Solution Summary
ATC and minimum efficiency are contrasted in this solution.