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Allocative efficiency is a state of the economy in which production is aligned with the preferences of consumers and producers; in particular, the set of outputs is chosen so as to maximize the social welfare of society. [1] This is achieved if every produced good or service has a marginal benefit equal to the marginal cost of production.
When drawing diagrams for businesses, allocative efficiency is satisfied if output is produced at the point where marginal cost is equal to average revenue. This is the case for the long-run equilibrium of perfect competition. Productive efficiency occurs when units of goods are being supplied at the lowest possible average total cost.
The theory of value is closely related to that of allocative efficiency, the quality by which firms produce those goods and services most valued by society. The market value of a machine part, for example, will depend upon a variety of objective facts involving its efficiency versus the efficiency of other types of part or other types of ...
The production function is central to the marginalist focus of neoclassical economics, its definition of efficiency as allocative efficiency, its analysis of how market prices can govern the achievement of allocative efficiency in a decentralized economy, and an analysis of the distribution of income, which attributes factor income to the ...
A firm that has shut down is not producing. The firm still retains its capital assets; however, the firm cannot leave the industry or avoid its fixed costs in the short run. Exit is a long-term decision. A firm that has exited an industry has avoided all commitments and freed all capital for use in more profitable enterprises. [34]
To be sure, Musk has led his companies with an eye toward efficiency. When Musk took over Twitter (now X) in 2022, the workforce stood at 7,800. Recent numbers suggest a reduction by 80% to 1,500 ...
Productive efficiency is reached when goods and services are produced with an optimal combination of inputs, resulting in the maximum output at the lowest costs. [2] A firm is said to be productively efficieducing at the lowest point on the average cost curve. This is where marginal cost meets average cost.
OSLO (Reuters) -A tram derailed and crashed into a store in central Oslo on Tuesday, injuring the driver and at least three other people, Norwegian police said. The blue tram of the Oslo transport ...