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The optimal output, shown in the graph as , is the level of output at which marginal cost equals marginal revenue. The price that induces that quantity of output is the height of the demand curve at that quantity (denoted ).
Consequently, the societally optimal firm size is OQ 2, where long-run average cost is at its lowest level. The socially optimal firm size is the size for a company in a given industry at a given time which results in the lowest production costs per unit of output.
Productive efficiency: no additional output of one good can be obtained without decreasing the output of another good, and production proceeds at the lowest possible average total cost. These definitions are not equivalent: a market or other economic system may be allocatively but not productively efficient, or productively but not allocatively ...
This equilibrium would be a Pareto optimum. [1] 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).
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.
Let k be the capital/labour ratio (i.e., capital per capita), y be the resulting per capita output (= ()), and s be the savings rate. The steady state is defined as a situation in which per capita output is unchanging, which implies that k be constant. This requires that the amount of saved output be exactly what is needed to (1) equip any ...
These functions describe each firm's optimal (profit-maximizing) quantity of output given the price firms face in the market, , the marginal cost, , and output quantity of rival firms. The functions can be thought of as describing a firm's "Best Response" to the other firm's level of output.
If Walras's law has been satisfied, the optimal solution of the consumer lies at the point where the budget line and optimal indifference curve intersect, this is called the tangency condition. [3] To find this point, differentiate the utility function with respect to x and y to find the marginal utilities, then divide by the respective prices ...