productive efficiency


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Fig. 157 Productive efficiency. In the graph, which assumes a long-run AVERAGE COST CURVE that is U-shaped, plant size OA results in minimum cost. If plant sizes are suboptimal (OB), or if optimal-sized plants (OA) are underutilized because of a shortfall in demand (OX), then actual supply costs will be higher than attainable costs.

productive efficiency

an aspect of MARKET PERFORMANCE that denotes the efficiency of a market in producing current products at the lowest possible cost in the long run, using existing technology. Productive efficiency is achieved when output is produced in plants of optimal scale and when there is a long-run balance of market supply and demand. See Fig. 157 . See also MINIMUM EFFICIENT SCALE, TECHNOLOGICAL PROGRESSIVENESS, EXCESS CAPACITY, RATIONALIZATION.