The significance of this is that both productive and allocative efficiency
are achieved. Productive efficiency has already been explained in
Chapter 6; it refers to the situation where the firm is producing at the minimum
level of average cost. This is achieved in the long run and the firm is using
the optimal scale with maximum efficiency. Note that in the long run, even
though the firm is using a larger scale, it is producing less output than in the
short-run situation, q2 compared with q1. This is because it was using the scale
inefficiently in the short run, producing too much output. Note also that this
inefficiency resulted from the firm maximizing its profit, showing that profit
maximization and efficiency are not equivalent. Allocative efficiency will be
explained in the next section on monopoly, when the two types of market
structure are compared.