What is a production possibilities frontier? What do points along the frontier represent? What do points inside and outside the frontier represent?
Answer: A production possibilities frontier is a curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology. Points along a production possibilities frontier are attainable with the resources available and are efficient. Points inside the frontier are attainable but inefficient. Points outside the frontier are unattainable.
a. The PPF is linear to reflect the fact that resources are equally suited to both tasks.
b. Opportunity cost is defined as the highest-valued alternative that must be forgone by taking an action.
c. In the PPF graph in part (a), suppose the country is currently producing at point X and wishes to move to point Y so that it can produce more beer. The only way it can obtain more beer is to give up some amount of pretzels.
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