In the 1980s, the federal government undertook a major build-up of the military sector, leading to reports that prices charged by military contractors were spiraling upward. According to production possibilities analysis, this result is not surprising due to:
A) the law of increasing opportunity cost.
B) economic efficiency.
C) technical efficiency.
D) resource underutilization.

Question

Quizplus · Accepted Answer

The law of increasing opportunity cost states that as production of one good/service increases, the opportunity cost of producing additional units of that good/service increases. In the case of military contractors, as the federal government increased its demand for military goods/services, the opportunity cost of producing these goods/services also increased. This resulted in higher prices charged by military contractors, as they had to give up producing other goods/services in order to fulfill the government's demand. Therefore, the result is not surprising based on the law of increasing opportunity cost.

In the 1980s, the Federal Government Undertook a Major Build-Up