All points on the production possibilities frontier
A) are production inefficient.
B) are allocatively efficient but only one point achieves production efficiency.
C) are production efficient but only one point achieves allocative efficiency.
D) are allocatively inefficient.
E) achieve allocative efficiency.

Question

Quizplus · Accepted Answer

Points on the production possibilities frontier represent the maximum possible combination of two goods that can be produced with given resources and technology. Therefore, all points on the production possibilities frontier are production efficient, meaning that it is not possible to produce more of one good without sacrificing the production of the other good. However, only one point achieves allocative efficiency, which means that society is producing the combination of goods that is most desired by consumers. Allocative efficiency occurs when the marginal benefit of producing an additional unit of one good is equal to the marginal cost of producing it, or MB=MC. Therefore, only one point on the production possibilities frontier achieves allocative efficiency, but all points on the frontier are production efficient.

All Points on the Production Possibilities Frontier