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QUESTION:

3. Efficiency in the production possibilities model

Suppose the fictional country of Cuyahoga produces only two goods: sorghum and telephoto lenses. The following graph plots Cuyahoga's current production possibilities frontier, and includes six different output combinations given by black points (plus symbols) labeled A to F.

ANSWER:

Complete the following table by indicating whether each point represents output combinations that are inefficient, efficient, or unattainable. Check all that apply.
Point
Inefficient
Efficient
Unattainable
A
B
C
D
E
F
Points:
1 / 1
Close Explanation
Explanation:
Every output combination on the production possibilities frontier shows an efficient output combination for Cuyahoga. The points on the production possibilities frontier represent all combinations of output produced using all of the nation's available resources and its current technology, such that the nation cannot produce more of one good without producing less of the other.
Points located inside the production possibilities frontier, such as C and D, represent inefficient output combinations. At these points, it is possible to increase the production of both goods because some resources are unemployed. For example, point C is inefficient because it is possible for Cuyahoga to produce at point B instead, where the economy is producing both more sorghum and more telephoto lenses.
Points located on the production possibilities frontier, such as A and B, represent efficient output combinations. At these points, it is impossible to increase the production of one good without producing less of the other. For instance, if Cuyahoga is currently producing at point B and decides that it wants to produce more sorghum, it must produce fewer telephoto lenses.
Points located outside the production possibilities frontier, such as E and F, represent output combinations that are unattainable, given current resources and technology. Recall that each point on the production possibilities frontier shows the maximum quantity of sorghum Cuyahoga can produce if it also wants to produce the given quantity of telephoto lenses. For example, compare point B (36 million telephoto lenses and 46 million bushels of sorghum) with point F (36 million telephoto lenses and 80 million bushels of sorghum). Because point B is on Cuyahoga's production possibilities frontier, you can see that if Cuyahoga is producing 36 million telephoto lenses, it can produce at most 46 million bushels of sorghum. Therefore, point F must be unattainable, given current resources and technology.

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