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Productive Efficiency

Productive efficiency is the ability of a firm to produce goods or services at the lowest possible cost, given the level of output and the available technology. It means that a firm is using all its resources in the most efficient way possible, producing the maximum output with the minimum input. Here's how it can be measured:

  • A firm is productively efficient if it is producing at the lowest point on its average cost curve.
  • If the firm is producing at a point above its average cost curve, it is not productively efficient, as it could produce the same output at a lower cost.
  • Productive efficiency does not necessarily result in allocative efficiency.

The output of productive efficiency occurs when a business in a given market or industry reaches the lowest point of its average cost curve implying an efficient use of scarce resources and a high level of factor productivity.

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