In a simple economy that produces two goods, what does a point located on the Production Possibilities Frontier (PPF) represent?

• A. Productive inefficiency, with some resources left unused
• B. A situation where opportunity cost is zero
• C. Productive efficiency, where all resources are fully utilized
• D. An unattainable combination of goods given current resources

Answer: (C)

Verified step by step guidance

1. Understand that the Production Possibilities Frontier (PPF) represents the maximum possible output combinations of two goods that an economy can produce given its resources and technology.
2. Recognize that any point on the PPF curve shows a combination of goods where resources are fully and efficiently utilized, meaning the economy is operating at productive efficiency.
3. Know that points inside the PPF indicate productive inefficiency, where some resources are underutilized or wasted.
4. Identify that points outside the PPF are unattainable with the current resources and technology, representing combinations that cannot be produced.
5. Conclude that a point on the PPF means the economy is producing at its maximum potential without any waste, so opportunity cost is positive (not zero) because producing more of one good requires sacrificing some of the other.