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Allocative efficiency is a state of the economy in which production is aligned with the ... Allocation efficiency occurs when there is an optimal distribution of ...
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.
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).
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 ...
Pareto efficiency is achieved when the marginal rate of transformation (slope of the frontier/opportunity cost of goods) is equal to all consumers' marginal rate of substitution. Similarly, not all Pareto efficient points on the frontier are Allocative efficient. Allocative efficient is only achieved when the economy produces at quantities that ...
Other concepts include functional/operational efficiency, which is inversely related to the costs that investors bear for making transactions, and allocative efficiency, which is a measure of how far a market channels funds from ultimate lenders to ultimate borrowers in such a way that the funds are used in the most productive manner.
There are two main types of static efficiency: productive efficiency and allocative efficiency.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]
The demand for a product or service which occurs when purchasers are constrained in a different market. efficiency dividend An annual reduction in resources available to an organization. [155] It is usually applied as a percentage of operational (running) costs. efficiency wage. Also called efficiency earnings.