Multiple Choice
Which of the following statements about continuous flow processes is correct in the context of the Production Possibilities Frontier (PPF) and productive efficiency?
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2. Introductory Economic Models
Production Possibilities Frontier (PPF) - Introduction and Productive Efficiency
Multiple Choice
Refer to the graph of the Production Possibilities Frontier (PPF). If moving from point B to point C results in producing 10 more units of good X and 5 fewer units of good Y, what is the opportunity cost of this move?
A
10 units of good X
B
15 units of good Y
C
5 units of good Y
D
There is no opportunity cost
Verified step by step guidance1
Understand that the opportunity cost of moving from point B to point C on the Production Possibilities Frontier (PPF) is the amount of good Y that must be given up to produce more of good X.
Identify the change in the quantity of good X: it increases by 10 units when moving from point B to point C.
Identify the change in the quantity of good Y: it decreases by 5 units when moving from point B to point C.
Calculate the opportunity cost of producing 10 more units of good X as the amount of good Y forgone, which is 5 units.
Express the opportunity cost per unit of good X by dividing the units of good Y given up by the units of good X gained, i.e., opportunity cost per unit of X = \(\frac{5}{10}\) units of good Y.
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