Multiple Choice
Suppose that a small company is considering building new manufacturing plants. Which factor of production is most directly associated with the construction of these plants?
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0. Basic Principles of Economics
Factors of Production
Multiple Choice
In the context of factors of production, increased productivity due to technology has:
A
caused diminishing returns to set in earlier
B
led to a reduction in the supply of labor
C
shifted the production possibilities frontier outward
D
decreased the opportunity cost of all goods
Verified step by step guidance1
Step 1: Understand the concept of the Production Possibilities Frontier (PPF). The PPF represents the maximum combinations of two goods that an economy can produce given its resources and technology.
Step 2: Recognize that an increase in productivity due to technological improvement means that the economy can produce more output with the same amount of inputs.
Step 3: Analyze how this increase in productivity affects the PPF. Since more output can be produced, the PPF shifts outward, indicating growth in production capacity.
Step 4: Consider why the other options are less appropriate: 'diminishing returns setting in earlier' relates to short-run production with fixed inputs, 'reduction in supply of labor' is unrelated to technology improving productivity, and 'decreased opportunity cost of all goods' is not necessarily true as opportunity costs depend on relative trade-offs.
Step 5: Conclude that the correct interpretation of increased productivity due to technology is that it shifts the production possibilities frontier outward, reflecting an expansion in the economy's productive capacity.
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