Ask Question
29 March, 13:38

Suppose residents of Montana operate on their production possibility frontier, and they want to increase the production of both wheat and fly-fishing rods. According to the production possibility frontier, this cannot happen without new resources or technological improvement. True or false?

Answers (1)
  1. 29 March, 15:16
    The correct answer is True.


    The production possibilities frontier (FPP) is a graphical representation of the maximum quantities of production that an economy can obtain in a given period using all the resources it has available.

    In an economy that has thousands of products, the alternatives to produce one or the other good and how much of each are very large. When an alternative is chosen, it means that other possibilities are being renounced. The relationship between what we choose and what we give up is the opportunity cost.

    If all available resources are not used, that is, the potential production is not reached, the quantities produced will be within the enclosure delimited by the production possibilities frontier. That is, they would be at a possible but inefficient level.

    On the other hand, that the quantities produced were to the right of the FPP would represent an impossible situation since, as we have indicated, in the FPP all available resources are already being used, so if we were to the right, it would mean that We are using non-existent resources.

    On the other hand, if there are technological improvements or labor improvements, the production possibilities frontier will shift to the right, since there will be capacity to manufacture a greater number of the two goods. On the contrary: if production capacity decreases (usually due to a shortage of raw materials or natural disasters), the production possibilities frontier would shift inwards (to the left). That is, if the available resources changed, we would obtain a new FPP.
Know the Answer?