The output level where average unit cost is minimized is known as what?

• A. Productive efficiency
• B. Opportunity cost
• C. Marginal cost
• D. Allocative efficiency

Answer: (A)

Verified step by step guidance

1. Understand the concept of average unit cost, which is the total cost divided by the quantity of output produced. It reflects the cost per unit of output.
2. Recognize that the output level where average unit cost is minimized corresponds to the most efficient scale of production, meaning the firm is producing at the lowest possible cost per unit.
3. Recall that 'productive efficiency' is the term used in microeconomics to describe the situation where goods are produced at the lowest possible average cost, indicating no resources are wasted.
4. Differentiate this from other terms: 'Opportunity cost' refers to the value of the next best alternative foregone; 'Marginal cost' is the cost of producing one additional unit; 'Allocative efficiency' occurs when resources are distributed to produce the mix of goods most desired by society.
5. Conclude that the output level minimizing average unit cost is called 'productive efficiency' because it reflects the most cost-effective production point.