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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.
X-inefficiency underscores the importance of competition and innovation in fostering efficiency, which can reduce costs for companies, resulting in increased profits and better output and prices for consumers. However, X-inefficiency only focuses on productive efficiency and minimizing costs, not on allocative efficiency and maximizing welfare.
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.
Productive efficiency is an aspect of economic efficiency that focuses on how to maximize output of a chosen product portfolio, without concern for whether your product portfolio is making goods in the right proportion; in misguided application, it will aid in manufacturing the wrong basket of outputs faster and cheaper than ever before.
The production function is one of the key concepts of mainstream neoclassical theories, used to define marginal product and to distinguish allocative efficiency, a key focus of economics. One important purpose of the production function is to address allocative efficiency in the use of factor inputs in production and the resulting distribution ...
Allocative inefficiency refers to a situation in which the distribution of resources between alternatives does not fit with consumer taste (perceptions of costs and benefits). For example, a company may have the lowest costs in "productive" terms, but the result may be inefficient in allocative terms because the "true" or social cost exceeds ...
We should watch whether President Trump’s real motive is to reshape the government to reflect his badly misinformed opinions and Project 2025, whose vision of America is much different than the ...
The law of diminishing returns (also known as the law of diminishing marginal productivity) states that in a productive process, if a factor of production continues to increase, while holding all other production factors constant, at some point a further incremental unit of input will return a lower amount of output.