The Production Possibilities Boundary Shows Possible Combinations of Guns and Butter

question 12

Multiple Choice

The production possibilities boundary shows possible combinations of guns and butter that can be produced by a country.The lower diagram shows demand and supply for butter. FIGURE 12-2
-Refer to Figure 12-2.Suppose demand and supply for butter are shown by D and S,respectively.And suppose the economy is at point (a) on the production possibilities boundary.How can this economy move toward allocative efficiency?

• A)expand the production possibilities boundary outward
• B)increase the supply of guns
• C)increase the demand for butter
• D)produce less butter,more guns
• E)produce more butter,fewer guns

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Definitions:

Fixed Costs

Fixed costs are expenses that do not change with the level of production or sales, such as rent, salaries, and insurance premiums.

Variable Costs

Expenses that change in proportion with the level of business activity or production volume, such as raw materials and direct labor costs.

Target Income

The desired profit level that a company aims to achieve within a specific period, often used in budgeting and financial planning.

Contribution Margin

The amount of revenue remaining after subtracting variable costs, used to cover fixed costs and generate profit.