Efficiency Outcomes for Perfect Competition
- Allocative Efficiency is achieved in both the short run and long run as a result of simple profit maximizing behavior. Profit maximizing perfectly competitive firms always produce where P = MC.
- Productive Efficiency output levels are achieved in long run equilibrium because any level of output above leads to entry, falling price, and reduced output and any level below leads to exit, rising price and increasing output.
- Technical Efficiency is achieved in long run equilibrium because any firm which isn't technically efficient will incur losses at the long run equilibrium price and so will have to either lower costs to the technically efficient level or go out of business.
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