Under which market structure are firms said to be productively and allocatively efficient?

In a perfectly competitive market structure, firms achieve both productive and allocative efficiency. Productive efficiency occurs when firms produce goods at the lowest possible cost, which typically happens when they operate at the minimum point of their average cost curve. In perfect competition, the large number of firms ensures that no single firm can influence the market price, pushing them to operate efficiently to remain competitive.

Allocative efficiency is reached when the price of a good or service reflects the marginal cost of producing that good. In a perfectly competitive market, firms sell their products at a price equal to the marginal cost, meaning that resources are allocated in a way that maximizes consumer satisfaction. Consumers pay a price that is equal to the cost of making one more unit of the good, indicating that the resources used to produce goods are well-suited to consumer demands.

This dual efficiency is not typically found in other market structures. For instance, monopolies lack competition, allowing them to set higher prices and produce less than the socially optimal quantity, leading to inefficiencies. Monopolistic competition and oligopoly also fail to achieve the same level of efficiency due to product differentiation and market power, which can result in higher prices and decreased output relative to what would be produced in perfect competition.