The paper "Business Microeconomics Issues" is a good example of a macro & microeconomics assignment. In economics, allocative efficiency is the optimum allocation of scarce resources in accordance with the demand patterns of the customers. At allocative efficiency, AR=MC. Productive efficiency occurs when an organization operates at a minimum ATC and it produces a maximum output per input during the production process (Mas-Colell, 9). Dynamic efficiency takes place when new products, techniques and processes increase the economic growth over a period of time. The dynamic efficiency in most cases is dependent on RD investments.
In perfect competition, there is perfect knowledge, no differentiation of goods and other factors that affect the market. The productive, as well as allocative efficiency, can be achieved in perfect competition. This is considering that the goods and services are produced at the lowest cost possible. The firms with higher unit costs cannot survive in the market as the competitive forces drive down the prices. In a perfectly competitive market, there is a production of the right combination of goods due to the perfect knowledge of firms and consumers also have the right confluence of market signals.
Under such conditions, allocative efficiency can be achieved. The consumer and producer are also maximized in the competitive market leading to allocative efficiency. Perfect competition and economic efficiency, Source, < http: //beta. tutor2u. net/economics/reference/perfect-competition-economic-efficiency> Dynamic efficiency on the other hand may be difficult to achieve under a perfectly competitive market. This is because of the perfect knowledge of the other firms by the consumers in the market and the other competitors. Under such conditions, any new innovation can easily be copied and hence resulting in the loss of a competitive edge.
However, dynamic efficiency can be achieved in a competitive market when the firms make profits in the long run leading to investment in research and development (Mas-Colell, 11). The innovations can be good for society as it may have a lot of benefits to the consumers in the long run. In order for the firms to be more competitive, research and development have to be carried out on a large scale which also leads to the development of new products and hence increasing the competitiveness of the firms.
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