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?

• A. Increasing consumer spending on entertainment
• B. Building new factories to increase machinery production
• C. Allocating resources to produce more luxury goods
• D. Reducing government funding for infrastructure

Answer: (B)

Verified step by step guidance

1. Understand that a point on the Production Possibilities Frontier (PPF) represents productive efficiency, meaning resources are fully and efficiently utilized to produce a combination of goods.
2. Recognize that capital goods are goods used to produce other goods and services in the future, such as machinery, factories, and equipment.
3. Identify that an investment corresponding to point A on the PPF, which is efficient in capital goods production, would involve allocating resources to increase the production of capital goods rather than consumer goods.
4. Evaluate each option: increasing consumer spending on entertainment and producing more luxury goods focus on consumer goods, which do not increase capital stock; reducing government funding for infrastructure would likely decrease capital goods production.
5. Conclude that building new factories to increase machinery production is the investment that aligns with productive efficiency in capital goods, as it directly increases the economy's capacity to produce more in the future.