Question

Which of the following is a correct statement about production possibilities frontiers? a. An economy can produce only on the production possibilities frontier. b. An economy can produce at any point inside or outside a production possibilities frontier. c. An economy can produce at any point on or inside the production possibilities frontier, but not outside the frontier. d. An economy can produce at any point inside the production possibilities frontier, but not on or outside the frontier.

Answer 1

Answer:

c. An economy can produce at any point on or inside the production possibilities frontier, but not outside the frontier.

Explanation:

Production Possibility Frontier is graph representing product combinations, that an economy can produce with given resources & technology.

A fundamental assumption of PPF is that : Goods are fully efficiently utilised. So, PPF reflects full production potential of economy, with given resources & technology.

• Hence, any & all production point(s) on PPF reflect economy's best potential output, fully efficiently utilising given resources & technology
• Point(s) inside PPF reflect economy's production below it's full potential,  by inefficient utilisation of given resources & technology.
• Point(s) outside PPF reflect production level beyond economy's best efficient full potential level, with given resources & technology.

Therefore : An economy can produce on PPC ; under PPC ; but can't produce outside PPF