The production possibilities frontier (PPF) illustrates:

• A. how a firm determines its profit-maximizing level of output
• B. the distribution of income among different groups in society
• C. the relationship between price and quantity demanded for a single good
• D. the maximum combinations of two goods that can be produced with available resources and technology

Answer: (D)

Verified step by step guidance

1. Understand that the Production Possibilities Frontier (PPF) is a curve that shows the maximum possible output combinations of two goods that an economy can produce given its available resources and technology.
2. Recognize that the PPF illustrates the concept of opportunity cost, which means producing more of one good requires sacrificing some amount of the other good due to limited resources.
3. Note that the PPF does not show how a firm determines profit-maximizing output, nor does it depict income distribution or demand relationships; instead, it focuses on production capacity and trade-offs.
4. Identify that points on the PPF curve represent efficient production levels where resources are fully utilized, while points inside the curve indicate inefficiency, and points outside are unattainable with current resources.
5. Conclude that the correct interpretation of the PPF is that it illustrates the maximum combinations of two goods that can be produced with available resources and technology.