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When the price equals marginal cost of production, the allocation efficiency is at the output level. This is because the optimal distribution is achieved when the marginal utility of good equals the marginal cost. The price that consumer is willing to pay is same as the marginal utility of the consumer. Allocative Efficiency example
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 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 ...
Perfect competition provides both allocative efficiency and productive efficiency: Such markets are allocatively efficient, as output will always occur where marginal cost is equal to average revenue i.e. price (MC = AR). In perfect competition, any profit-maximizing producer faces a market price equal to its marginal cost (P = MC).
in 1966, Harvard University Professor Harvey Leibenstein first introduced the concept of X-inefficiency in his paper "Allocative Efficiency vs. X- Efficiency", which was published in American Economic Review. X-Inefficiency refers to a firm's inability to fully utilize its resources, resulting in an output level that falls short of the maximum ...
Allocative efficiency takes into account the preferences of the consumers and the efficient allocation of resources. Graphically this point is reached when price is equal to marginal cost. At this point there is no deadweight loss, and the social surplus (consumer surplus + producer surplus) is maximized.
Macy’s reported stronger-than-expected sales for the third quarter and said it’s delaying the release of its full quarterly results after it discovered an employee intentionally hid up to $154 ...
In economics, the field of public finance deals with three broad areas: macroeconomic stabilization, the distribution of income and wealth, and the allocation of resources. . Much of the study of the allocation of resources is devoted to finding the conditions under which particular mechanisms of resource allocation lead to Pareto efficient outcomes, in which no party's situation can be ...