The diagram below illustrates the long-run equilibrium of a firm operating in a perfectly competitive market:
Which of the following statements correctly describes the economic efficiency achieved by this firm at equilibrium point EEE?
The firm achieves allocative efficiency because P=MCP = MCP=MC, but fails to achieve productive efficiency because it does not operate at the minimum point of the average total cost (ATCATCATC) curve.
The firm achieves productive efficiency because it operates at the minimum of the ATCATCATC curve, but fails to achieve allocative efficiency because price (PPP) exceeds marginal cost (MCMCMC) in the long run.
The firm achieves both productive and allocative efficiency, but is unlikely to achieve dynamic efficiency because it only earns normal profits in long-run equilibrium.
The firm achieves dynamic efficiency by reinvesting its long-run supernormal profits, but fails to achieve productive efficiency due to the presence of excess capacity.
