The diagram below shows the short-run and long-run cost and revenue curves for a firm operating in a perfectly competitive market.
Which of the following options correctly identifies the point where the firm achieves both productive and allocative efficiency simultaneously, and states its long-run profit level?
Point X, because the firm maximises short-run profit where MR=MCMR = MCMR=MC, earning supernormal profits.
Point Y, because the firm operates at the minimum of its average total cost curve where P=MCP = MCP=MC, earning normal profit.
Point Z, because the firm produces where price equals average total cost, earning normal profit.
Point Y, because the firm produces at its lowest average cost and is allocatively efficient, earning supernormal profits.
