Producing goods and services with the optimal combination of inputs to produce maximum output for the minimum cost
Technical efficiency
A firm is technically efficient when it combines the optimal combination of labour and capital to produce a good (i.e. cannot produce more of a good, without moreinputs)
Productive efficiency
Can exist withoutallocative efficiency
Productive Efficiency
Economy must be producing on its PPF ( Production Possibility Frontier )
Points A and B are productively efficient.
Point D is inefficient because you could produce more goods or services with no opportunity cost
Point C is currently impossible.
Productive efficiency and short-run average cost curve
A firm is said to be productivelyefficient when it is producing at the lowest point on the short run average cost curve (this is the point where marginalcost meets averagecost).
