Multiple choice

When _______, we know that firms must be producing at the minimum point of the average cost curve and so there will be productive efficiency.

  1. AC = AR

  2. MC = AC

  3. MC = MR

  4. AR = MR

Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Productive efficiency means producing at minimum average cost. The MC curve intersects the AC curve at its minimum point. When MC = AC, the firm has reached the minimum efficient scale and is productively efficient. This occurs naturally in perfect competition in the long run due to free entry and exit.

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