What is the rule for productive efficiency?
In economics, production efficiency is the ability to produce the maximum amount of output from a limited set of resources. Generally, the more goods a company or economy produces, the less efficient it is at producing them. This can be a problem when there is a shortage of a resource or when two industries compete for the same scarce resource.
What is the production possibility frontier?
A production possibility frontier (PPF) curve shows the maximum level of production for a particular good. Once a firm or market reaches this point, it is no longer possible to produce more units of that good without reducing the production of another good.
What are the implications of productive efficiency and allocative efficiency?
Productive efficiency is the ability of a firm to maximize its profit by producing that output at which marginal cost equals average total cost. Society also achieves productive efficiency if the price of each good is equal to the marginal cost of making the last unit of that good.
What is the difference between productive and technical efficiency?
Productive efficiency relates to the optimal mix of labour and capital that is used to produce a good. Technological efficiency relates to the best way to use resources such as physical capital and labor to produce a given good.
In the long run, a firm will produce to the level where its marginal cost equals its average total cost. In a perfectly competitive market, this is an efficient structure.