Productive-Efficiency++in+Perfect+Competition

=Productive Efficiency in Perfect Competition=

In the long run, pure competition forces fims to produce at the minimum average total cost of production and to charge a price that is just consistent with that cost. Productive Efficieny by definition is where price equals the minimum of the ATC curve. Unless firms use the cheapest production methods and combinations of inputs, they will not survive in a perfectly competitive market. Consumers benefit from productive efficiency by paying the lowest product price possibel under the prevailing technology and cost conditions.The //invisible hand// is constantly forcing companies in perfect competition to be productively efficient.

It means that the minimum amount of resources will be used to produce any particular output. This must be achieved in perfect competition, because if a firm was not doing it another firm would be able to undercut it by selling products at a lower price. Assuming that a Chinese restaurant is one of many many firms in an industry that produces the exact same chinese food products, the price would be set at equilibrium price--> this would leave only cost reductiona as the only solution for a firm to make profits. In the example below, we have to assume that the Chinese place has brought it's costs down as low as possible, to a point where it equals price- meaning that their chinese food actually cost only $1 to make.

In the long-run for Perfect Competition, the Chinese restaurant is producing at the bottom of the ATC curve, and it can be assumed that it is costing them exactly $1 to make the Chinese food - implying it cannot produce the goods any more cheaply. This would be achieved in perfect competition, because if a firm was not doing it another firm would be able to undercut it by selling products at a lower price. (warning: don't eat foreign food that costs only a dollar to make)

Productive Efficiency in Perfect Competition
media type="youtube" key="uKU2o6H84H8" height="344" width="425" Assuming this garment producing firm is operating with in perfect competition, they are being productively efficient by producing their goods as cheaply as possible. Sweatshop factories like this one are known for their extremely cheap labor.

Test Yourself:
For a firm to be productively efficient in perfect competition they would have to be producing where on the ATC curve? Why?

Links:
For more information on Perfect Competition, go to http://www.answers.com/topic/perfect-competition For more on Productive Efficiency, go to http://en.wikipedia.org/wiki/Productive_efficiency For more information about cheap labor, go to http://www.gaebler.com/Cheap-Labor-in-China.htm

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Answer:
At the bottom of the ATC curve, where the cost of production are at a minimum to maximize profits. A firm can't affect its profits by changing the price, but it can get the costs down as low as they can. This would be achieved in perfect competition, since if a firm was not doing it another firm would be able to undercut it by selling products at a lower price.