Figure 1-7 Shows the Production Possibilities Boundary for an Economy

question 17

Multiple Choice

Figure 1-7 shows the production possibilities boundary for an economy that produces two goods-cotton and bananas. FIGURE 1-7 Refer to Figure 1-7.A production possibilities boundary is shown for an economy that produces two goods-cotton and bananas,both measured in tonnes produced per year.Suppose this economy moves from point D to point F,where it is then producing bananas exclusively.Which of the following explanations best describes the opportunity cost involved in producing this extra 100 tonnes of bananas?

• A)The opportunity cost is very high in this case because resources that are probably much better suited to producing cotton are now being devoted to producing bananas.
• B)The opportunity cost is very low in this case because resources that are probably much better suited to producing cotton are now being devoted to producing bananas.
• C)The opportunity cost is very high in this case because resources that are probably much better suited to producing bananas are now being devoted to producing cotton.
• D)The opportunity cost is very low in this case because resources that are probably much better suited to producing bananas are now being devoted to producing cotton.
• E)The opportunity cost of producing the extra bananas is independent of the amount being produced.

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Definitions:

Safety Stock

Additional inventory kept on hand to mitigate the risk of stockouts due to unpredictable demand.

Lead Time

The amount of time it takes for an order to be fulfilled from the moment it is placed until it is received by the customer.

Kanban Size

The quantity of work or materials specified by a Kanban card, used in a pull system to control inventory and workflow.

Setup Cost

The expenses incurred to prepare equipment or processes for manufacturing an order or a batch of goods, including costs for adjusting machines, cleaning, and changing tooling.