Below is a production possibilities table for consumer goods (automobiles) and capital goods (forklifts):
a) Show the data graphically. Upon what specific assumptions is this production possibilities curve based?
b) If the economy is at Point C, what is the cost of one more automobile? What is the cost of one more forklift? Which characteristic of the production possibilities curve reflects the law of increasing opportunity costs: its shape or its length?
c) If this economy produces 3 automobiles and 20 forklifts, what could you conclude about its use of its available resources?
Production Possibility Frontier:
A production possibility frontier (PPF) is a curve that shows all of the possible levels of production for two goods, given the total amount of resources available in the economy. The PPF is a downward sloping curve due to limitations on resources; for example, the higher the production of one good, the lower the production of the other good.
Answer and Explanation: 1
a) The production possibility curve is based on the assumptions that (1) an economy utilizes all of the available resources and (2) the specialization...
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fromChapter 3 / Lesson 8
The production possibility curve demonstrates the potential profit from a given economic condition. See how this illustrates different economic conditions through evaluating scarcity, production factors, efficiency, and opportunity costs.