Whenever we attain productions in the quantity of present on the PPF, we attain efficiency. But there are multiple points present on the PPF, so it is necessary to determine at which point production is most profitable. This is done by calculating the point where production of goods is done at optimum quantities to gain the most profit. And this is possible only when the goods are produced at the minimum possible production cost. This leads to allocative efficiency.

To calculate allocative efficiency we must compare the cost profits of production of different goods.


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