What does it indicate when production occurs inside the production possibilities frontier (PPF)?

• A. Resources are not being used efficiently.
• B. It is impossible to produce at this point.
• C. All resources are fully and efficiently utilized.
• D. The economy is operating at maximum productive efficiency.

Answer: (A)

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 using all available resources efficiently.
2. Recognize that points on the PPF curve indicate full and efficient utilization of resources, meaning the economy is operating at maximum productive efficiency.
3. Identify that points outside the PPF are unattainable with current resources and technology, so production cannot occur there.
4. Analyze what it means when production occurs inside the PPF: it implies that some resources are idle or not used efficiently, leading to less output than the economy's potential.
5. Conclude that production inside the PPF indicates inefficiency in resource use, meaning the economy is not maximizing its productive capacity.