Productive Efficiency

Statement

Productive efficiency is achieved when a firm produces at the lowest possible cost of production — at the lowest point of its long-run average cost curve.

Notes

Productive efficiency is about how output is produced: at the minimum efficient scale, all internal economies of scale are exhausted and unit cost is minimised, so no resources are wasted. It is one of the government’s efficiency goals, alongside allocative efficiency and dynamic efficiency; how the four market structures measure against it is set out in efficiency in markets.