Multiple Choice
Which of the following occurs only in the long run with respect to the Production Possibilities Frontier (PPF)?
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2. Introductory Economic Models
Production Possibilities Frontier (PPF) - Introduction and Productive Efficiency
Multiple Choice
Which of the following is an assumption in the Economic Production Quantity (EPQ) model?
A
Production and demand rates are constant and known.
B
Shortages are allowed during the production cycle.
C
Inventory is replenished instantaneously.
D
Production rate is always less than the demand rate.
Verified step by step guidance1
Understand the Economic Production Quantity (EPQ) model: It is an inventory management model that determines the optimal production quantity to minimize total costs, considering both production and holding costs.
Recall the key assumptions of the EPQ model: One major assumption is that both the production rate and demand rate are constant and known, which allows for a steady and predictable inventory build-up and depletion.
Analyze the given options in light of EPQ assumptions: For example, shortages are typically not allowed during the production cycle in the basic EPQ model, so that option is incorrect.
Consider the inventory replenishment process: In EPQ, inventory is replenished gradually during production, not instantaneously, which differentiates it from the Economic Order Quantity (EOQ) model.
Evaluate the relationship between production and demand rates: The production rate in EPQ is assumed to be greater than the demand rate to allow inventory to build up during production periods.
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