Allocative and productive efficiency of prefectly competitive markets

In perfectly competitive markets we have productive efficiency as output is produced at the lowest cost in the long run. This is because the demand curve (also the average and marginal revenue curve) for the firm is perfectly horizontal and is tangential to the minimum point of the average cost curve. There is zero economic profit at this point.
Perfectly competitive markets are also efficient in allocating resources. This is because price that people are willing to pay (represented by the demand curve) is equal to marginal cost of production. If MC > P then it is better if resources are shifted away from the current use to producing goods where the price that people are willing to pay (relecting their value for the product) is equal to the marginal cost of producing it. In perfectly competitive markets MC=P and hence there is allocative efficiency. Allocative efficiency , unlike productive efficiency , can occur in the short run as well.

Pricing strategies and elasticity of demand

In 1931 Pepsi-cola was facing bankruptcy. Pepsi and coca cola were both selling 6 ounce bottles at five cents each. In order to save costs Pepsi began to use 12 ounce bottles and sold it for ten cents each. This did not help much . Later they began to sell the same for 6 cents - undercutting Coca cola. Coca cola had a dominant market share and did not respond to Pepsi's price cut. The unwillingness of Coca cola to match the price cuts had implications for Pepsi's demand elasticity and ensured it success.

Politicians and sunk cost behaviour

Acting on the basis of sunk cost is irrational. Behaviour based on sunk cost is like crying over spilt milk. Decisions based on sunk cost lead to faulty or suboptimal outcomes. Yet human beings are not free of such bahaviour. Politicians are the more visible category of people who are prey to such behaviour.
Take for instance a prominent politician's recent outburst against the common wealth games. He poured scorn over the governments efforts to host the commonwealth games and hoped the same would be a failure.He is of the opinion that the money could have been spent in a better manner. He could be right in questioning the primacy of games expenditure over other priorities such as poverty alleviation etc. Economic planning is all about allocating resources in a manner in which welfare is maximised.Hopefully spending on the games figures in this optimal allocation.
But now that we have ventured into these games and are at an advanced stage of completion his hopes for a failure seems to be a classic sunk cost behaviour. Hoping for a failure based on an unrecoverable cost is like hoping for the worse. The benefits of successfully hosting the games may be few or many but are certainly positive. But the consequences of a failure are certainly negative.