Figure 19-3 illustrates the determination of an efficient output mix in a two good economy.The output combination is represented by point Z and the consumption point of a representative consumer is W.The slope of the line zz represents the marginal rate of transformation [MRT]. -In Figure 19-3,at point Z: A)the MRT_XYis greater than the MRS_XY. B)the opportunity cost of producing an additional unit of good X equals 2 units of good Y. C)the resources in the economy are being used inefficiently. D)the slope of the production possibility frontier is greater than the slope of the line zz.

Question

Quizplus · Accepted Answer

At point Z, the slope of the line zz represents the marginal rate of transformation [MRT], which is the amount of good Y that must be given up in order to produce an additional unit of good X. Therefore, the opportunity cost of producing an additional unit of good X equals 2 units of good Y. This is shown by the slope of the line zz being 2. Point Z represents the efficient output mix, where the economy is producing at the lowest possible opportunity cost. Therefore, the resources in the economy are being used efficiently. A is incorrect because the MRT_XYis greater than the MRS_XYat point Z. D is incorrect because the slope of the production possibility frontier is equal to the MRT, which is the same as the slope of line zz at point Z.

Figure 19-3 Illustrates the Determination of an Efficient Output Mix