Suppose That a Fully Employed Economy Produces Only Two Goods

question 74

Multiple Choice

Suppose that a fully employed economy produces only two goods, hamburgers and flat-panel TVs. If the economy is currently producing more than the optimal quantity of hamburgers, then to attain the optimal allocation of resources, it should

• A) produce more hamburgers and fewer TVs.
• B) produce more TVs and fewer hamburgers.
• C) produce more of both goods.
• D) produce fewer of both goods.

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Definitions:

Average Total Cost

The total cost of production (fixed plus variable costs) divided by the number of units produced, showing the average cost per unit.

Long Run

A period during which all factors of production and costs are variable, allowing for the adjustment of all inputs and the adoption of new technology.

Marginal Output

The additional output produced as a result of using one more unit of a particular input while keeping other inputs constant.

Variable Costs

Costs that change in proportion to the level of output or business activity.