Which type of efficiency is achieved when a firm produces output at the lowest possible average total cost of production?

• A. Equality
• B. Allocative efficiency
• C. Productive efficiency
• D. Dynamic efficiency

Answer: (C)

Verified step by step guidance

1. Understand the concept of productive efficiency: it occurs when a firm produces output at the lowest possible average total cost (ATC), meaning resources are used in the most cost-effective way.
2. Recall that average total cost (ATC) is calculated as total cost divided by quantity produced, and the lowest point on the ATC curve represents the minimum cost per unit of output.
3. Recognize that productive efficiency is about minimizing costs of production, not necessarily about matching consumer preferences or maximizing social welfare.
4. Differentiate productive efficiency from allocative efficiency, which occurs when the price of the good equals the marginal cost (P = MC), reflecting optimal distribution of resources according to consumer preferences.
5. Conclude that when a firm produces at the lowest point on its ATC curve, it achieves productive efficiency, ensuring no resources are wasted in production.