ECO100Y5 Lecture Notes - Lecture 12: Marginal Cost, Productive Efficiency, Monopolistic Competition
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Eco100: chapter #12: economic efficiency and public policy. 12. 1 productive and allocative efficiency: efficiency requires that factors of production are fully employed. Fig 12-1: ppb shows the combinations of output that are possible when the economy is using its resources efficiently. If firms and industries are productively efficient, the economy will be on the production possibilities boundary rather than inside of it. If mr < mc, too much of that product is being produced, because the cost to society of the last unit produced exceeds the benefits of consuming it. If mr > mc, too little of that good is being produced, because the cost to society of producing the next unit is less than the benefits that would be gained from consuming it. Fig 12-2: any point on the ppb is productively efficient, boundary shows all the combinations of goods that can be produced when the economy"s resources are fully employed, any point inside the curve is inefficient.