Which statement correctly distinguishes productive efficiency from allocative efficiency?

Which statement correctly distinguishes productive efficiency from allocative efficiency?

• A. Productive efficiency means producing at the lowest possible average cost; Allocative efficiency means the mix of goods most valued by society.
• B. Productive efficiency means the mix of goods most valued by society; Allocative efficiency means producing at the lowest possible average cost.
• C. Productive efficiency means price equals marginal cost; Allocative efficiency means output is maximized.
• D. Productive efficiency and allocative efficiency are the same.

Answer: (A)

Productive efficiency is about using resources in the cheapest way to produce a given set of goods—producing at the lowest point of the average total cost curve. Allocative efficiency focuses on producing the right mix of goods that society values, which in a competitive market is shown when price reflects marginal cost. The best statement captures both ideas: productive efficiency means producing at the lowest possible average cost, and allocative efficiency means the mix of goods most valued by society. The other options mix up these definitions or state something that isn’t how these concepts are defined (for example, price equals marginal cost describes allocative, not productive efficiency; simply “output is maximized” isn’t the standard definition of allocative efficiency).

Productive efficiency is about using resources in the cheapest way to produce a given set of goods—producing at the lowest point of the average total cost curve. Allocative efficiency focuses on producing the right mix of goods that society values, which in a competitive market is shown when price reflects marginal cost.

The best statement captures both ideas: productive efficiency means producing at the lowest possible average cost, and allocative efficiency means the mix of goods most valued by society. The other options mix up these definitions or state something that isn’t how these concepts are defined (for example, price equals marginal cost describes allocative, not productive efficiency; simply “output is maximized” isn’t the standard definition of allocative efficiency).