How is a perfectly competitive firm in the long run equilibrium both allocatively and productively efficient?

A perfectly competitive firm can achieve both allocative and productive efficiency in the long run equilibrium.

Explanation:

Productive efficiency implies that there is no waste when a good is being produced, and the firm stays exactly on the production possibility frontier. In a perfectly competitive market, there are free entry and exit, and the market price in the long run will be equal to the minimum of the long-run average cost curve. The indication is that the lowest possible average cost is the point at which both the production and sales of goods are carried out.

Allocative efficiency is obtained when the socially preferred point is the point selected from different available points on the production possibility frontier. As a result of this, price and the marginal cost of production will be equal in a perfectly competitive market in the long run. Perfectly competitive firms can ensure that social costs of producing a good and its social benefits are equal when a decision is made by them to achieve profit maximization by producing at the quantity where price is equal to marginal cost (P = MC).

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