Which of the following best describes the three stages of production as illustrated by the Production Possibilities Frontier (PPF)?

• A. Increasing returns, constant returns, and decreasing returns
• B. Short run, long run, and shutdown
• C. Scarcity, opportunity cost, and equilibrium
• D. Perfect competition, monopoly, and oligopoly

Answer: (A)

Verified step by step guidance

1. Understand that the Production Possibilities Frontier (PPF) illustrates the maximum possible output combinations of two goods or services an economy can achieve when all resources are fully and efficiently utilized.
2. Recognize that the PPF is related to the concept of returns to scale or returns to a factor in production, which describe how output changes as input changes.
3. Identify the three stages of production in microeconomics: increasing returns (where output increases at an increasing rate), constant returns (where output increases proportionally with input), and decreasing returns (where output increases at a decreasing rate).
4. Relate these stages to the shape of the PPF, which typically reflects increasing opportunity costs and diminishing returns as production shifts from one good to another.
5. Eliminate other options by understanding that terms like short run, long run, and shutdown relate to time horizons and firm decisions; scarcity, opportunity cost, and equilibrium are broader economic concepts; and perfect competition, monopoly, and oligopoly describe market structures, not production stages.