Multiple Choice
Suppose point A on a Production Possibilities Frontier (PPF) represents productive efficiency in capital goods. Which of the following investments would most likely correspond to an investment at point A?
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2. Introductory Economic Models
Production Possibilities Frontier (PPF) - Introduction and Productive Efficiency
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Which of the following scenarios best illustrates constant returns to scale on a production possibilities frontier (PPF)?
A
When doubling all inputs leads to a doubling of output.
B
When increasing inputs does not change output at all.
C
When doubling all inputs leads to more than double the output.
D
When doubling all inputs leads to less than double the output.
Verified step by step guidance1
Understand the concept of returns to scale: it describes how output changes when all inputs are increased proportionally.
Recall that constant returns to scale occur when doubling all inputs results in exactly double the output.
Analyze each scenario in terms of how output changes relative to the proportional increase in inputs:
- If output doubles when inputs double, this matches constant returns to scale.
- If output does not change, it indicates zero or no returns to scale; if output more than doubles, it indicates increasing returns to scale; if output less than doubles, it indicates decreasing returns to scale.
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Production Possibilities Frontier (PPF) - Introduction and Productive Efficiency practice set
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