Question

Suppose that an economy is producing on its production possibilities curve but is not producing quantities of each good where the marginal benefit equals the marginal cost for each good. This economy:
a. should not change its production because it cannot improve its allocation by shifting resources.

b. can improve its allocation by lowering the unemployment rate.

c. can improve its allocation by producing more of one good and less of the other.

d. can improve its allocation by producing more of both goods.

Answer 1

Answer:

c. can improve its allocation by producing more of one good and less of the other.

Explanation:

Production possibility curve shows all the combinations not two products that can be produced by an economy with a given level of resources. When more of one good is produced, less of the other is produced.

When the marginal benefit of the goods are not equal to the marginal cost, the economy can find a balance where the benefits of producing bother goods exceeds their cost.

This can be done by producing more of one good and less of the other.