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In the single-price model, at the point of allocative efficiency price is equal to marginal cost. [3] [4] At this point the social surplus is maximized with no deadweight loss (the latter being the value society puts on that level of output produced minus the value of resources used to achieve that level). Allocative efficiency is the main tool ...
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.
By doing so, it defines productive efficiency in the context of that production set: a point on the frontier indicates efficient use of the available inputs (such as points B, D and C in the graph), a point beneath the curve (such as A) indicates inefficiency, and a point beyond the curve (such as X) indicates impossibility.
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).
If 50 people are employed, at some point, increasing the number of employees by two percent (from 50 to 51 employees) would increase output by two percent and this is called constant returns. Further along the production curve at, for example 100 employees, floor space is likely getting crowded, there are too many people operating the machines ...
An example PPF: points B, C and D are all productively efficient, but an economy at A would not be, because D involves more production of both goods. Point X cannot be achieved. Productive efficiency occurs under competitive equilibrium at the minimum of average total cost for each good, such as the one shown here.
Workforce productivity is to be distinguished from employee productivity which is a measure employed at the individual level based on the assumption that the overall productivity can be broken down into increasingly smaller units until, ultimately, to the individual employee, in order be used for example for the purpose of allocating a benefit ...
In Fig. 14 the point x is a Pareto optimum which does not satisfy the definition of competitive equilibrium. The question of whether the economy would settle at such a point is quite separate from whether it satisfies a given definition of equilibrium; evidently in this case it would indeed settle there.