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Chapter 1.2, Problem 1QQ

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Economics (Irwin Economics)

21st Edition
Campbell R. McConnell + 2 others
ISBN: 9781259723223

Solutions

Chapter
Section
BuyFindarrow_forward

Economics (Irwin Economics)

21st Edition
Campbell R. McConnell + 2 others
ISBN: 9781259723223
To determine
Relevance of production possibility frontier.

Answer

Option ‘c’ is correct.

Explanation

Figure 1 illustrates the possibility of producing two goods within the available resources.

images

In Figure 1, the horizontal axis measures the quantity of pizza in hundred thousand units and the vertical axis measures industrial robots in thousand units.

Option (c):

The production possibility frontier indicates that the firm has to give up certain amounts of one good in order to increase the other goods. The bowed out PPF curve indicates that the firm can increase the production of one good without reducing the production of other goods. This leads to an increase in the opportunity cost of producing one good. Thus, option ‘c’ is correct.

Option (a):

The PPF curve measures the slope that indicates the opportunity cost of producing one good over other goods. It does not measure the marginal benefit. Thus, option “a” is incorrect.

Option (b):

The curve is steeper when it moves from A to E. If the curve moves from E to A, then it becomes flatter. Thus, option ‘b’ is incorrect.

Option (d):

The PPF curve reveals the possibility of producing two goods within the available resources. Thus, option‘d’ is incorrect.

Concept

Concept introduction:

Production Possibilities Frontier curve (PPF): The PPF curve refers to all the combinations of goods and services that can be produced with the available resources.

Opportunity cost: Opportunity cost refers to the benefits given up in the process of obtaining some other benefits.

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