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How does the source define productive efficiency?
ASetting price above marginal cost to maximize firm profit
BProducing the largest possible quantity, regardless of cost
CProducing without waste, right on the production possibility frontier
DProducing exactly what every consumer wants, regardless of cost
Answer & Solution
Correct answer: C. Producing without waste, right on the production possibility frontier
1. Productive efficiency is about how goods are produced, not which goods are chosen.
2. It means producing without waste, placing the outcome exactly on the production possibility frontier.
3. In the long run in a perfectly competitive market, this happens because entry and exit push price down to the minimum of the long-run average cost curve.
4. Producing the largest possible quantity regardless of cost is not the same as producing without waste at the lowest possible cost.
_Source: OpenStax Principles of Microeconomics for AP Courses (CC BY 4.0), Ch 8 "Perfect Competition", section 8.4 | Efficiency in Perfectly Competitive Markets_
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