Suppose that there are two goods that a small island nation can produce – coconuts and breadfruit
If the inputs for both goods are perfectly interchangeable and there is never a rise or fall in opportunity cost explain what the production possibilities frontier should look like and why.
Production possibilities frontier are typically concave to the origin which reflects the law of increasing opportunity cost. In the present example this is not the case. The opportunity cost is constant which would lead to a downward-sloping but linear production possibilities frontier.
You might also like to view...
Which of the following is true?
i. The demand for a good is elastic if when its price changes, the percentage change in the quantity demanded exceeds the percentage change in price. ii. Price elasticity of demand equals the percentage change in price divided by the percentage change in the quantity demanded. iii. If demand is price inelastic, a rise in price leads to a decrease in total revenue. A) only i B) only ii C) only iii D) i and ii E) ii and iii
Freedom of entry into a market tends to preserve
A) competition. B) abnormal profits. C) social justice. D) the gap between the price of a good and marginal cost.