If a firm produces combinations of goods along the PPF curve, it has achieved its productive efficiency. And when a firm reaches productive efficiency, it means that all factors of production have been fully utilized. And another way of measuring productive efficiency is to look at its average cost. If a firm has reached productive efficiency, it means that the firm is producing at the lowest average cost.
But what about the points that fall inside the PPF?
Let’s say A (15,10) is on the PPF curve, and B (15,5) lies beneath it. Assume that a firm is producing at point B, and the reason why it isn’t producing at a higher level is that there’s still some cash deposit in its business account that hasn’t been withdrawn yet.
Since cash deposit is NOT a factor of production, even the firm is producing at points beneath the PPF, it doesn’t necessarily imply that the firm has not utilized all factors of production. Where did I go run?