What does a production possibilities curve (PPC) represent in microeconomics?

• A. The maximum combinations of two goods that can be produced using available resources and technology
• B. The total revenue a firm can earn at different levels of output
• C. The relationship between price and quantity demanded for a single good
• D. The minimum cost of producing a given quantity of a good

Answer: (A)

Verified step by step guidance

1. Step 1: Understand that a Production Possibilities Curve (PPC) is a graphical representation used in microeconomics to illustrate the trade-offs between the production of two different goods or services.
2. Step 2: Recognize that the PPC shows the maximum possible output combinations of two goods that an economy can produce given fixed resources and technology, assuming efficient use of those resources.
3. Step 3: Note that points on the curve represent efficient production levels, where resources are fully utilized, while points inside the curve indicate inefficient use of resources, and points outside are unattainable with current resources and technology.
4. Step 4: Understand that the shape of the PPC (usually concave) reflects the law of increasing opportunity costs, meaning producing more of one good requires giving up increasingly larger amounts of the other good.
5. Step 5: Conclude that the PPC does not represent total revenue, price-quantity relationships, or cost minimization, but specifically the maximum combinations of two goods producible with available resources and technology.