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PERFECT COMPETITION, LONG-RUN ADJUSTMENT: A perfectly competitive industry undertakes a two-part adjustment to equilibrium in the long run. One is the adjustment of each perfectly competitive firm to the appropriate factory size that maximizes long-run profit. The other is the entry of firms into the industry or exit of firms out of the industry, to eliminate economic profit or economic loss. The end result of this long-run adjustment is a multi-faceted equilibrium condition that price is equal to marginal cost and average cost (both short run and long run).
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                           TECHNICAL EFFICIENCY: Obtaining the greatest possible production of goods and services from available resources. In other words, resources are not wasted in the production process. This is also considered as engineering efficiency and should be contrasted with economic or allocative efficiency. Technical efficiency means that natural resources are transformed into goods and services without waste, that producers are doing the best job possible of combining resources to make goods and services. There is no waste of material inputs. There are no workers standing idly around waiting for spare parts. The maximum amount of physical production is obtained from the given resource inputs. In essence, production is achieved at the lowest possible opportunity cost.Technical efficiency is a prerequisite for allocative or economic efficiency. Economic efficiency is achieved if the highest possible level of satisfaction is obtained from given resources. Because satisfaction is derived from consuming goods and services, economic efficiency requires the greatest possible level of production, that is, technical efficiency. However, while technical efficiency is necessary for economic efficiency, it does not guarantee economic efficiency. While technical efficiency might be achieved in the production of purple spotted stuffed animals, allocative efficiency is not achieved if no one actually wants purple spotted stuffed animals and they remain stored in a big purple warehouse.
Recommended Citation:TECHNICAL EFFICIENCY, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2026. [Accessed: August 11, 2026].
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Lombard Street is London's equivalent of New York's Wall Street.
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"I love the man who can smile in trouble, who can gather strength from distress and grow brave by reflection. " -- Thomas Paine, statesman
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JF
Journal of Finance
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