Which of the following is one of the simplifying assumptions made in constructing a production possibilities curve?
A) The state of technology is constantly changing
B) A wide variety of products are produced
C) Resources are fully employed and are used in least-cost methods of production
D) Quantities of available resources in the economy vary from one point to another

Question

Quizplus · Accepted Answer

The assumption that resources are fully employed and are used in least-cost methods of production is a key assumption in constructing a production possibilities curve. This assumption allows us to assume that all available resources are being used efficiently and therefore the economy is producing at its maximum potential. This assumption also assumes that the only way to increase production of one good is to decrease production of another good. Other assumptions, such as the state of technology and availability of resources, can affect the shape of the curve but are not considered in the initial construction of the curve.

Which of the Following Is One of the Simplifying Assumptions