For example, assume that after a total eclipse of the sun, you suddenly think it is 1967 and the Summer of Love, even though you were not even born yet when it was actually 1969. The area shown in the graph is the aggregation of the surplus realized by all the consumers in the market for the good measured along the demand curve. By segmenting markets and charging a higher price to consumers with less elastic demand, a firm is taking away some of the consumer surplus and adding to its profits. A key concept in life is efficiency. Economically speaking, when it come to the use of inputs and resources in production, efficiency is highly desirable.
Productive efficiency refers to the optimal use of resources in the production process.
To achieve productive efficiency, a firm wants to reap all possible economies of scale and produce at the lowest possible per unit cost - at the minimum point of the average total cost curve. The perfectly competitive firm achieves productive efficiency by producing at the minimum points of its average total cost curve in the long run. As we can see in Figure 10-3, the monopoly firm does not attain productive efficiency and produces in the rage of the average total cost curve where economies of scale are present if output were to be increased. From this, we can make two deductions. First, competition is desirable as inputs are used to their greatest potential efficiency.