Question

Using the 'economic efficiency rule', is perfect competition efficient?

Answer 1

Economic efficiency is a sum total of the allocative and the production efficiency. A market will be called economic efficient if it is allocative and productive efficient.

A perfect market is economic efficient because it produces at a point where the average total cost is the lowest, that makes the production most efficient in the market. it is allocative efficient because in a perfect market the price of the goods is equal to the cost of the resources i.e. the price and the marginal cost of producing one extra good is equal . So when the price = minimum point of ATC and P=MC the firm is economic efficient.