When Drawing a Production Possibilities Frontier for Two Goods, All

question 199

Multiple Choice

When drawing a production possibilities frontier for two goods, all of the following are usually assumed, except for one. Which of the following is the exception?

• A) The quantity of resources is rapidly growing.
• B) Technology is fixed.
• C) Resources can be shifted from the production of one good to the other.
• D) The production possibilities frontier is drawn for a particular time period.
• E) Resources are fully and efficiently employed.

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Definitions:

Cost Of Capital

Represents the rate of return that a company must earn on its investment projects to maintain its market value and attract funds.

Financial Leverage

The use of borrowed money (debt) to amplify the potential returns from an investment or project.

Bankruptcy Costs

Expenses and fees associated with the process of declaring bankruptcy, including legal fees, filing fees, and other related costs.

MM Theory

Modigliani-Miller Theorem; a financial theory stating that the market value of a company is independent of its capital structure and dividend policy under certain conditions.