Title: Pure Competition: Long-Run Equilibrium
Headings: Pure Competition: Long-Run Equilibrium
Pure Competition: Long-Run Equilibrium
Average Total Cost = Marginal Cost = Market Price
Productive And Allocative Efficiency Under Pure Competition

Content: Productive And Allocative Efficiency Under Pure Competition
Productive efficiency requires that products be produced for the minimum cost. When productive efficiency is achieved, price = minimum average total costs. Therefore, any firm that cannot produce at the minimum ATC will be forced to leave the industry. If a firm is more productive in producing a certain product, with average total costs lower than the industry average, then they can increase output continually until either other firms achieve similar efficiency or they are forced out. Hence, firms that use the best technology and methods will achieve the lowest average total costs, thereby providing the lowest possible price for the product. Allocative efficiency requires that resources be apportioned among firms and industries so as to yield the best combination of products and services most desired by society. The greatest allocative efficiency is achieved when there is no other combination of goods and services that would be more desired by society. Allocative efficiency is achieved because suppliers supply the product at the lowest average total cost, which allows them to supply the product at a quantity desired by the consumers as reflected in the price that they are willing to pay. The lowest market prices that are achieved under a purely competitive market allow the greatest number of consumers to enjoy the product, and for those consumers that do enjoy the product, their consumer surplus is maximized. When price = minimum average total cost, the firm is using the most efficient available technology and producing the greatest output based on its costs.