The assumption that states that, if there is a production activity y that produces a certain amount of output z using capital and labor in particular amounts and another activity w that produces the same quantity using different amounts of these inputs, then we can always produce at least z by mixing these activities and using y a fraction of the time and w a fraction of the time is known as the
A) additivity assumption
B) divisibility assumption
C) convexity assumption

Question

Quizplus · Accepted Answer

The given assumption is known as the convexity assumption, as it states that the production possibility set is convex. This means that any combination of the two production activities lying between y and w can also be produced by mixing y and w in some proportion. The additivity assumption is related to the composition of output, where the total output is simply the sum of outputs produced by different activities. The divisibility assumption assumes that inputs can be used in arbitrarily small quantities. Therefore, option C is the best choice as it accurately describes the given assumption.

The Assumption That States That, If There Is a Production